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Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/abolitionoftrialOObookrich 


The  Abolition  of  the  Trial  Balance 

together  with 

Twelve  Studies  in  Book-keeping 
and  Accounting 


IN  XIV  CHAPTERS 

FULLY  ILLUSTRATED 


or  THr 
UNIVERSITY 

or 


SITY  ^ 


PubUshed  by 

The  Book-Keeper  Publishing  Company,  Limited 
Detroit,  Michigan 


SENEBAi: 

C 


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Entered  according  to  Act  of  Congress 
in  the  year  1906,  by 

THE  BOOK-KEEPER  PUBLISHING  COMPANY,   LTD 
DETROIT,  MICHIGAN 

In  the  office  of  the  Librarian  of  Congress. 
All  rights  reserved. 


^     or  T 
MNIVERSITY  1 

OF  J 


INTRODUCTORY 


GENERAL  SCOPE 

DESIGNED  as  a  complete  Course  of  Instruction  for  those  who  desire  to 
ground  themselves  in  the  science  of  book-keeping  and  the  presentation 
of  accounting  records  as  used  in  the  most  up-to-date  practice,  and  as  a  pre- 
liminary text  book,  in  conjunction  with  Thome's  20th  Century  Book-keeping 
and  Business  Practice,  for  those  desirous  of  taking  up  the  Individual  Home 
Study  Course  in  Higher  Accounting,  conducted  by  The  International  Account- 
ants' Society,  Incorporated. 

Ct,  Special  attention  is  devoted  in  these  studies  to  the  procedure  necessary 
in  transferring  books  of  account  from  single  to  double  entry,  from  partner- 
ships to  corporations,  and  the  general  opening  of  sets  of  books  by  double 
entry. 

C[.  An  important  section  of  the  book  is  that  concerning  the  abolition  of  the 
trial  balance,  wherein  it  is  demonstrated  that  the  trial  balance,  as  understood 
in  ordinary  book-keeping  nomenclature,  should  be  relegated  to  the  scrap- 
heap  as  useless  and,  therefore,  unnecessary. 


EXERCISES  AND  STANDARD  ANSWERS 

C  The  exercises  appended  to  each  chapter  have  been  specially  prepared  with 
a  view  to  imparting  further  information,  and  to  strengthening  the  working 
knowledge  of  the  reader,  along  the  lines  above  indicated. 

C[.  Every  purchaser  of  this  text  book  is  strongly  urged  to  work  out  these 
exercises  for  himself  and,  on  forwarding  the  answers  so  obtained  to  the  Board 
of  Examiners  of  The  International  Accountants'  Society,  Incorporated,  he  will 
be  entitled  to  a  review  of  same,  and  the  highly  valuable  standard  answers, 
free  of  charge. 

C  This  text  book — together  with  the  exercises,  review  of  answers  thereto, 
and  the  standard  answers— constitutes  a  complete  course  of  study  far  in 
advance  of  anything  to  be  obtained  elsewhere. 


■Jr) 


TABLE  OF  CONTENTS 


CHAPTER  I.— Primary  Principles  of  Accounting. 

CHAPTER  II.— Sales  Books,  Sales  Ledgers;  Controlling  Ac- 
counts. 

CHAPTER  III.— Real,  Trading  and  Nominal  Accounts;  Classifi- 
cation of  Assets  and  Liabilities. 

CHAPTER  IV.— Purchase  and  Voucher  Records;  Credit  Journals; 
Purchase  Ledgers;  Bills  Receivable. 

CHAPTER  V. —Preparation  of  Trial  Balance;  Trading  Accounts; 
Profit  and  Loss  Accounts  and  Balance  Sheets. 

CHAPTER  VI.— Preparation  of  Comparative  Statements. 

CHAPTER  VII.— Opening  Entries;  Transfer,  Stock  Discounts. 

CHAPTER  VIII.— Branch  Stores  Accounts;  Partnerships,  Inter- 
est Formulas. 

CHAPTER  IX.— Opening  Entries;  Use  of  Manifold  Blanks. 
CHAPTER  X.— Closing  Entries;    Reverse  Posting  System,  Per- 
petual Balances. 

CHAPTER  XI.— Complete  Set  of  Double  Entry  Accounts;  Open- 
ing, Operating  and  Closing  of  Books;  Trading  Accounts; 
Ledgers;  Profit  and  Loss  Accounts;  Balance  Sheets;  Bal- 
ance Adjustments. 

Chapter  XII.— Opening  and  Closing  Entries;  Treatment  of 
Good-will;  Anticipated  Discounts. 

CHAPTER  XIII.— The  Abolition  of  the  Trial  Balance. 

CHAPTER  XIV.— Model  Sets  of  Demonstrations. 


CHAPTER  I 


Preliminary  Principles  of  Accounting. 

(i)  In  the  first  installment  of  the  Individual  Home  Study  Course  in 
Higher  Accounting  we  lay  stress  on  .4ie  fact  that  the  capability  to  keep  a  set 
of  books  in  balance  is  simply  the  bottom  rung  of  the  ladder  of  accounting. 
Nevertheless,  before  a  student  of  the  science  of  accounts  can  expect  to 
achieve  the  best  results  and  reach  the  highest  rung  of  the  ladder,  it  is 
absolutely  necessary  to  attain  proficiency  in  practical  book-keeping,  and  for 
this  reason  this  Preliminary  Home  Study  Course  in  Accounting  and  Book- 
keeping has  been  established.  One  of  the  main  objects  of  the  course  is  to 
induce  in  the  student  the  habit  of  independent  thought  and  investigation, 
and  to  the  student  who  will  carefully  work  out  the  exercises  attached  to 
these  lessons  we  guarantee  a  thorough  knowledge  of  the  subject  by  the 
time  the  course  is  completed.  All  exercises  may  be  worked  out  on  ordinary 
journal  ruled  paper,  which  can  be  obtained  very  cheaply  at  any  stationery 
store.     By  journal  ruled  paper  we  mean  paper  ruled  as  follows : 


The  left-hand  column  is  always  used  for  debits  and  the  right-hand 
column  for  credits.  It  will  not  be  necessary,  therefore,  to  head  these 
columns,  as  the  entries  will  be  so  understood.  Items  making  up  total 
amounts  (sometimes  called  extensions)  should  be  written  just  outside  the 
left-hand  column. 

On  receipt  of  the  students'  answers  to  the  exercises  they  will  be  care- 
fully examined  by  our  Board  of  Examiners,  and  returned  with  such  correc- 
tions and  criticisms  as  may  be  considered  of  value  to  the  student.If  the 


corrections  and  criticisms  be  many  the  student  should  be  neither  offended  nor 
discouraged,  as  such  corrections  and  criticisms  are  made  solely  with  a  view 
to  his  particular  benefit. 

PRIMARY   PRINCIPLES. 

{2)  Primary  principles  are  those  which  constitute  the  foundation  of 
book-keeping  by  double  entry. 

We  will  not  consider  the  so-called  single  entry  form  of  book-keeping, 
as  it  is  not  only  antiquated  but  practically  obsolete.  Only  those  persons 
use  the  single  entry  system  of  book-keeping  who  are  ignorant  of  the  supe- 
riority and  advantages  of  double  entry. 

Most  of  the  text  books  agree  on  the  definition  that  book-keeping  is 
the  art  of  recording  the  transactions  of  a  business  in  a  systematic  man- 
ner.    To  this  we  will  add  "and  determining  the  accuracy  of  such  records." 

The  great  weakness  of  single  entry  is  that  it  affords  no  opportunity 
to  prove  the  accuracy  of  book-keeping  records.  For  example,  almost  every 
business  house  keeps  sales  records  of  some  kind,  and  the  amounts  of  these 
sales  are  posted  to  the  accounts  of  customers  in  the  customers  ledger.  By 
single  entry  the  omission  of  posting  whole  pages  of  sales  from  a  sales 
record  to  the  customers  ledger  would  remain  undetected  except  by  acci- 
dental discovery.  By  a  properly  arranged  double  entry  system  such  an 
expensive  error  could  not  possibly  escape  notice. 

DOUBLE  ENTRY   BOOK-KEEPING. 

( j)  Double  entry  book-keeping  means  that  for  every  debit  there  must 
be  a  corresponding  credit.  As  a  contributor  to  The  Book-Keeper  and  Busi- 
ness Man's  Magazine  expressed  it,  ''Double  entry  is  a  system  of  opposing 
contra  things,"  which  is  partially  right  and  partially  wrong.  There  is  a 
great  fascination  in  the  idea  of  opposing  contra  things,  so  that  many 
accountants  have  gone  to  extremes,  this  accounting  for  what  is  termed  the 
science  of  Logismography,  which  is  practically  the  science  of  involving 
extra  contras  created  for  the  purpose.  We  will  have  more  to  say  later  on 
this  subject,  when  our  students  become  a  little  more  accustomed  to  the 
technology  of  accounting. 

ACCOUNTS  USED. 

(4)  The  accounts  used  in  the  double  entry  system  are  personal  ac- 
counts, real  accounts,  representative  accounts,  and  nominal  accounts.  The 
last  three  classes  of  accounts  are  frequently  included  under  the  head  of 
impersonal  accounts. 

An  account  is  a  collection  of  charges  and  credits  for  the  purpose  of 
ascertaining  how  much  has  been  expended  or  received  in  respect  of  one 
particular  person  or  one  particular  object. 


I 


PERSONAL   ACCOUNT. 


(5)     A  personal  account  is  an  account  containing  the  history  and  par- 
ticulars of  all  transactions  with  a  particular  person,  persons,  or  corporation. 


Nanxe    c/oAn  U).Jlob/e  &  Co. GlccoDr)tNo.M 

Rating    /52  ^  LirT\'tt^<;^25oo    ^a^K  SeconSJldfL 


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reh 

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FORM  a 


REAL   ACCOUNT.  • 

(d)  A  real  account  is  an  account  containing  the  history  of  all  transac- 
tions relating  to  a  particular  propert}'.  Properties  are  called  resources,  or 
assets. 


6l}eetNo.^ 


Q  66  he&5 


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debits 

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[Credirs 

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00 

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00 

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boz 

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FORM  3 


REPRESENTATIVE  ACCOUNTS. 


(7)  A  representative  account  is  one  which  completes  the  double  entry 
for  a  number  of  debits  or  credits  to  personal  accounts,  carrying  out  the  prin- 
ciple that  for  every  debit  there  must  be  a  credit.  Thus  the  debits  to  ten 
customers  or  personal  accounts  in  one  month  amount  to  $1,059.  This 
amount  is  credited  to  Sales  account. 

The  purchases  from  various  business  houses  for  a  month  amount  to 
$850,  and  the  amounts  making  up  this  sum  are  credited  to  the  accounts 
of  the  parties  from  whom  the  purchases  have  been  made.  In  order  to 
complete  the  double  entry  these  purchases  are  debited  to  Purchase  account. 

Statistical  advantages  of  representative  accounts  will  be  fully  consid- 
ered later  on. 


NOMINAL  ACCOUNTS. 

(8)  A  nominal  account  is  one  containing  the  history  and  particulars  of 
expenditures  or  receipts  on  account  of  certain  particular  sources  of  profit 
or  loss. 

N<nn\e        J^osta^e 


6lrt 

Fo. 

v/ 

l^ebits 

^a\at)ce 

Credits 

y/ 

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I>flTe 

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Feb. 

IS 

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11 

FORM  i* 


BOOKS   USED. 

(p)     The  principal  books  used  in  the  double  entry  system  of  book- 
keeping are : 

Sales  Books,  or  Journals. 

Purchase,  or  Accounts  Payable,  Books,  or  Journals. 

Voucher  Records. 

Cash  Books. 

General  Journals. 

Combination  Cash- Journals. 


Ledgers. 


CLASSIFICATION    OF   DEBITS    AND    CREDITS. 


(lo)  Double  entry  actually  consists  of  debits  and  credits,  and  these 
both  deal  with  transactions  of  the  following  nature  : 

The  transfer  of  merchandise  and  money. 

The  rendering  of  services. 

The  use  of  something  of  value. 

Both  debits  and  credits  are  also  used  to  correct  errors,  adjust  differ- 
ences and  gather  statistics. 

Let  us  now  consider  some  simple  illustrations  of  these  applications  of 
the  terms  ^'Debit"  and  "Credit." 

1.  The  transfer  of  merchandise. 

If  we  sell  goods  to  a  customer  we  debit  him  with  the  value  of  that 
with  which  we  have  parted. 

If  we  buy  merchandise  we  credit  the  persons  from  whom  we  buy  with 
the  value  of  what  we  receive. 

2.  The  transfer  of  money. 

If  we  loan  money  we  debit  the  persons  who  borrow  from  us. 

8 


If  we  borrow  money  we  credit  the  persons  who  have  loaned  to  us. 

3.  The  rendering  of  services. 

If  we  perform  work  of  any  kind  (such  as  legal  work)  for  some  person, 
L     at  his  request,  we  debit  that  person  with  the  value  of  those  services. 
r  If  some  person  performs  work  of  any  kind  for  us  (such  as  a  physi- 

cian) we  credit  him  with  the  value  of  that  work. 

4.  The  use  of  something  of  value. 

If  we  build  a  house  and  rent  it  to  a  tenant,  the  tenant  has  the  use 
of  our  property,  for  which  he  agrees  to  pay  a  stipulated  sum,  and  he  is, 
therefore,  debited  with  the  value  of  the  use  of  the  house. 

If  we  rent  or  lease  our  offices  from  the  owner,  we  credit  him  with  the 
stipulated  value  of  the  use  of  his  premises. 

5.  The  correction  of  errors. 

If  we  debit  the  wrong  person  on  account  of  goods  purchased  from  us, 
we  credit  his  account  and  debit  the  right  person  in  order  to  correct  the 
error. 

6.  The  adjustment  of  differences. 

If  we  bill  our  goods  to  a  customer  at  too  high  a  price,  we  adjust 
the  charge  by  crediting  him  and  debiting  the  proper  representative  account 
with  the  amount  of  the  difference. 

7.  The  gathering  of  statistics. 

If  our  business  contains  a  number  of  departments,  and  we  wish  to 
make  each  bear  its  share  of  the  rent  covering  the  whole  of  the' premises, 
we  debit  each  department  with  its  proper  share  of  the  burden  and  credit 
rent  account,  which  for  the  sake  of  illustration  we  assume  as  being  previ- 
ously  debited  with  the  entire  amount  of  the  rent  as  a  general  expense. 

M  (ii)     In  the  Home  Study  Course  in  Higher  Accounting  debits  and 

K   credits  are  thus  classified : 

1.  Accounts  representing  values  on  hand  or  purchases,  such  as  cash, 
stock  in  trade,  real  estate,  machinery — and  property  possessed  by  the 
merchant  prepared  to  do  business.  This  class  of  debits  comprehends  all 
those  impersonal  accounts  which  represent  goods  purchased  for  the  purpose 
of  selling  again  and  supplies  furnished  for  the  purpose  of  carrying  on  the 
business. 

2.  Accounts  representing  values  parted  with,  and  also  recording  the 
transfer  of  values,  such  as  customers'  accounts,  investment  accounts,  etc. 
This  class  of  debits  represent  those  charges  to  customers  on  sales  made  to 

rhem  of  the  goods  previously  purchased;    thus  constituting  a  transfer  of 
ralue. 
3.     Accounts  representing  losses,  such  as  general  expense,  postage, 
;ash  discount. 


4.     Accounts  carrying  deductions  from  credits  (negatives),  such  as 
allowances  for  returns,  depreciation,  adjusting  entries,  etc. 

(12)     Credits  are  thus  defined  in  The  American  Business  and  Account- 
ing Encyclopedia : 

"On  a  personal  account  a  credit  represents  what  we  receive. 
''Example — Goods  purchased  by  us    (Accounts  Payable). 
Cash  received  by  us      (Accounts  Receivable). 
Goods  returned  to  us    (Accounts  Receivable). 
"On  an  impersonal  account  a  credit  represents  a  reduction  of  outlay. 

.   "Example — Charge  John  Jones,  traveler $12.24 

Credit  Expense  Account $12 .  24 

for  612  miles  of  C.  &  N.  W.  mileage  used 
for  personal  purposes. 
"On  a  statistical  account  a  credit  frequently  represents  a  number  of 
debits  made  to  personal  accounts. 

"Example — Sales  Account,  representing  amount  of  sales  to  customers. 
"In  a  Profit  and  Loss  Account  the  credits  represent  the  profit  made 
by  the  transaction  of  the  business,  and  when  the  result  of  such  transactions 
IS  a  net  profit,  the  balance  of  the  account  is  a  credit  balance." 


10 


EXERCISES. 

1.  Furnish  examples  of  the  following  classes  of  accounts: 

Real 

Representative 

Nominal. 

2.  Furnish  examples  of  the  following  classes  of  debits  and  credits : 

1.  The  transfer  of  merchandise. 

2.  The  transfer  of  money. 

4.     The  rendering  of  services. 

4.  The  use  of  something' of  value. 

5.  The  correction  of  errors. 

6.  The  adjustment  of  differences. 

7.  The  gathering  of  statistics. 

3.  Furnish  examples  of  the  four  classes  of  debits  described  in  the 
Course  in  Higher  Accounting.     (See  paragraph  11.) 

4.  Furnish  examples  of  the  four  classes  of  credits  described  in  The 
American  Business  and  Accounting  Encyclopedia.     (See  paragraph  12.) 

5.  Differentiate  the  items  to  be  posted  from  Schedule  B,  Practice 
Set,  'Thome's  Twentieth  Century  Book-Keeping  and  Business  Practice," 
into  personal,  real,  representative  and  nominal  accounts. 


11 


CHAPTER  II 


Sales  Books,  Sales  Ledgers ;   Controlling  Accounts. 

(8)  Of  the  books  mentioned  in  our  first  lesson  sales  books,  sometimes 
called  sales  journals,  are  generally  used  exclusively  for  debit  entries — i.e., 
charges  to  customers  for  goods  sold  or  services  rendered.  There  are  many 
varieties  of  sales  journals,  as  the  forms  are  adapted  to  the  requirements  of 
different  classes  of  business. 

It  is  probably  understood  by  most  of  our  students,  but  we  will  explain 
for  the  benefit  of  a  possible  minority,  that  the  sales  book  is  sometimes  an 
original  record  of  orders  received,  and  is  sometimes  a  book  in  which  the 
names  and  amounts  are  listed  from  the  original  orders  so  as  to  distribute 
them  to  different  departments.  In  this  case  the  debits  to  the  ledger  are  made 
from  the  sales  book,  and  the  totals  of  the  distribution  columns  are  posted 
to  the  credit  of  the  various  departmental  sales  accounts  at  the  close  of  the 
month. 

(p)  A  common  form  of  sales  book  for  an  ordinary  business  is  ruled  as 
per  illustration. 

The  first  column  is  for  the  items  and  the  second  column  is  for  the  total 
of  the  bill,  which  is  posted  to  the  debit  of  the  customer's  account  in  the  led- 
ger. In  this  case  the  total  of  the  debits  to  customers  are  credited  at  the  end 
of  each  month  to  an  account  entitled  *'Sales  Account,"  thus  making  the 
double  entry  as  follows : 

Accounts  receivable  accounts  Dr $1000 

Sales  account  Cr $1000 

When  a  business  is  divided  into  different  departments  the  sales  must 
be  credited  to  the  various  departments  as  indicated  above  instead  of  to  one 
sales  account. 

{lo)  Another  form  of  sales  book  is  shown,  being  an  extremely  useful 
office  device.  This  sales  book  is  made  of  a  good  quality  of  Lhin  paper,  every 
other  page  being  perforated  as  shown  in  illustration.  A  carbon  sheet  is 
placed  between  the  perforated  sheet  and  the  duplicate,  which  latter  remains 
in  the  book  and,  a  proper  kind  of  pen  being  used  for  the  purpose,  two  copies 
of  the  transaction  are  made  at  one  writing.  The  perforated  sheet  written 
in  ink  is  detached  from  the  book  and  sent  to  the  customer  as  an  invoice.   The 

12 


carbon  copy  remains  in  the  book  and  constitutes  the  sales  record,  from  which 
posting  is  made  to  the  customer's  account  in  the  ledger. 

(//)     It  is  becoming  more  and  more  customary  to  furnish  traveling 


January,  1903. 


Day 


Sales 


Sales  15ook  af)c)  lf}volc« 


Mr*                            .    f^ate. 

Ncin\e 

Address 

Customer's  Order  No,           Ternvs 
Shipped    by     . 

Qu09tfry       Descrrptioo 

Price 

Items 

AtAourjT 

No 

NatA.c 

hnte 

/V  dd""?  5  s 

Custonver's    Order    No              Terrns 
Sl^ippcd     by .. 

QuO^tlty 

Descnptior) 

Price 

iTei^s 

An\oijr,T 

No._ 

DoTc 



Ad'^rrsis 

1 

CusToPver'S     Order     No.               Terr\s 
Sl)ipped    by 

Quorjtityl    DescripTtof) 

Price 

We 

ms 

ArvouQt 

salesmen  with  order  blanks  ruled  and  printed  as  per  illustrations,  the  names 
and  amounts  being  copied  in  a  sales  book,  where  they  are  distributed  to  the 


Order      l5I«ir)K 


TtBMS 

iqo 

1 

8iNDE«    rsuo 

■RATtfac 

Soirl  ro 

LEOCER    FOl'C- 

t;nc)dress 

LIMIT 

OATE  RErc.'\E& 

Order  HSonK    No.                             N  o. 

1 

CbecK 

1 

A  (»N  o  u  nTs 

1                            1 

Quof^T'Ty 

C)eScr;pfion                         Pnce 

Re^ 

l^lar             C.C 

D. 

Cloves 

F^.rCoc>T% 

Robes 

Ill 

II 

7Ae  Crlove  Manufacturing  Business.) 


Sales 

Sbeet 

Itcrrxs 

No.                       Rpcb'ister  No. 

r>n1>.                        iqo 

L.r 

'  Ratir)£ 

Sol 

d+n 

frilled 

Address 

Lin\i1~ 

Shipped   by 

cijeck 

Qociotrty 

DeSCripfior) 

Price   T 

otal       (^ 

loves   Robes    Pjjrs 

C.O.D.  i 

bo 

lys     d 

SO 
ays 

J 

» 

14 


various  departments  to  which  they  belong.     However,  the  distribution  is 
sometimes  provided  for  on  the  order  blanks  themselves,  as  shown  in  the 

Moo%ly  Reccipiti^lcTtior)    Sales    Sheet 


Folio 

Ternss 

/XrrvozjrChs 

===== 

= 

°° 

n 

Regular 

co.r^. 

Cloves 

fi»rCodt^ 

Robes  ' 

— 

1     ' 

Sq 

les 

OiJn\rr\Qr^ 

r 

Ch)ar^e 

Cloves 

furs 

Robes 

ToTals 
if)  all  be|DCirtn\er)t"s 

Tdtcij  in  ec\c\)  D€|3orTn\ei)1* 

« 

CO.D. 

Total  if)  €acbDe|3arrp\er)t 

Totbl  if)  eac\)  r>€pai^n\er)t 

Crcir)6   ToTcil 
ir)   each)  D€(oar1rr\er)t 

* 

glove  manufacturing  business. 

(12)  This  necessitates  a  recapitulation  at  the  end  of  the  month  in 
order  to  obtain  the  totals  for  the  various  departments.  It  will  be  noticed 
that  both  form  of  recapitulation  and  form  of  summary  shown  provide  for 

15 


regular  sales  and  C.  O.  D.  sales,  while  the  sales  summary  also  provides  for 
cash  sales.  It  is  usual  to  hold  C.  O.  D.  orders  and  include  them  with  cash 
sales  when  the  returns  come  in  from  the  express  company  or  delivery  wag- 
ons, so  that  the  division  between  cash  and  C.  O.  D.  seems  scarcely  necessary, 
(jj)  The  last  form  of  order  blank  illustrated  does  not  fill  the  office 
of  a  sales  book,  but  is  designed  to  go  to  various  departments  of  a  factory, 
so  that  different  parts  of  one  article  may  be  manufactured  at  the  same  time 
on  the  same  order.  The  Fisher  book  typewriter  is  used  to  make  seven  copies 
of  this  order  at  one  operation — one  copy  being  retained  hi  the  office,  one 


Ou*  or  Order 


OoMomtr't  0r4*r  la  Oar  Ordtr  ■•. 


being  used  as  acknowledgement,  and  the  others  being  furnished  to  the  super- 
intendent of  the  factory,  to  the  machine,  polishing,  and  assembling  rooms, 
and  to  the  shipping  room. 

The  price  and  date  of  shipment  columns  are  not  used  for  the  factory 
copies,  and  the  factory  columns  are  not  used  for  the  acknowledgment  of 
order.  These  changes  are  effected  by  perforation,  or  by  the  ''short  leaf" 
plan. 

(14)  As  further  illustrations  of  distribution  we  attach  samples  in  the 
lumber  and  brewery  lines  of  businesses. 

(ij)  In  breweries  and  some  other  kinds  of  businesses,  it  is  necessary 
to  keep  a  record  of  packages.  See  illustration.  These  packages  are  charged 
to  the  customer  when  the  goods  are  sent  out,  and  credited  to  him  when 
returned. 

When  the  various  orders  representing  sales  to  customers  have  been 
O.  K'D.  and  extended  on  order  blanks,  or  entered  in  a  sales  book,  the 
amounts  are  posted  to  the  debit  of  customers  accounts  in  the  sales  ledger 
and  we  now  have  an  opportunity  to  explain  the  principle  of  double  entry  so 
that  it  may  easily  be  grasped. 

(16)  In  Thome's  Manual,  par.  223,  a  sales  book  for  a  department 
business  is  shown,  the  sales  being  distributed  over  six  departments.  They 
are  denominated  by  the  letters  A-F.  The  department  accounts  A-F  are 
kept  in  a  ledger  usually  called  the  General  Ledger,  and  to  these  accounts 
are  credited  the  total  of  the  debits  to  customers.    Thus,  the  total  of  Dept.  A 


16 


column  is  credited  to  Dept.  A  account  in  the  general  ledger,  the  items 
being  debited  to  accounts  of  customers  in  the  Accounts  Receivable  ledger, 


LurTNbe 

r 

:)ale6 

lt)OoK 

^    Inv. 

No. 

Car 
19,1 

Car 
No. 

^ 

PL>r(l)0«r 

DesTioatof) 

Anvoui)T 

P.oe 

Cf 

Menvlock 
No.Fc^ 

Mord- 
wood 
No.FeeT 

No  M     No.M 

(barK 

WooJ 

Cd6 

s|^|LriT1)|i:^rK 

A^^ 
Wood 

'^^ 

.fc> 

XI 

M.C 

l+Iil 

bo"^ 

Pd 

6coTT#<:o 

DetrotTM. 

1231 

&t 

50000 

^0000 

20000  15000 

50 

00 

it.q 

00 

10 

., 

15 

X2 

PRR 

biJI 

.^0^ 

folooK-Co 

(,rJ.Rc1[S.a» 

lO 

Soloo 

i5 

„ 

I& 

x^i 

CRI 

T2I 

5<^ 

Cb.H«r<) 

Ka|jnv)zoc 

if- 

I& 

00 

roRix  VIZI. 


Sales   Ibook 

Sales \<)02> 


bnte 

C 
0     . 

1^ 

bnvers 

to 

X 

0 

a 

i 

0 

> 

0 

^ 

E 
0 

J 

r 

< 

1. 

0 
Q. 

f 

N 

1 

i 

0 

(I 

0 

V) 

Au<> 

1 

IG 

C.SfT\)1t) 

n 

4o 

5 

2 

2 

2 

cr 

so  that  it  will  easily  be  seen  that  the  total  debits  to  customers  in  the  Ac- 
counts Receivable  ledger  exactly  equals  the  total  credits  to  the  six  depart- 
ments. The  debits  to  the  customers  are  posted  daily,  item  by  item.  The 
credits  to  the  departments  are  posted  at  the  end  of  the  month  in  totals. 

Where  a  business  is  not  divided  into  departments,  one  sales  account  is 
carried  in  the  general  ledger. 

If,  therefore,  the  customers,  or  sales  ledger,  shows  total  debits  in  one 
month  of  $1000,  the  sales  account  in  the  general  ledger  will  show  a  cor- 
responding credit  of  $1000,  thus  making  the  double  entry  and  effecting  a 
balance,  and  at  the  same  time  making  a  statistical  record  on  the  books  ex- 
hibiting the  total  business  done  during  that  period. 

Should  a  customer  return  a  part  of  the  goods  purchased,  it  is  customary 
to  make  a  journal  entry  crediting  him  with  the  value  returned  and  making  a 
corresponding  debit  to  the  sales,  or  department,  account.  Sometimes  these 
entries  are  made  in  a  cross-entry  journal,  sometimes  on  journal  slips,  and 

17 


sometimes  in  the  sales  book  itself.  As  we  are  now  considering  only  the 
sales  book  and  ledger,  we  will  not  discuss  cross-entry  journals.  When 
returns  are  credited  in  the  sales  journal  a  special  column  for  such  entries 
is  provided  as  per  the  following  illustration : 


Dat<a 

P^  niTc  ^J  J  ^  1^.^ 

ro).o 

~r  ~4^ 

1 

Dept.     A 

o«,c;+.    e>       1 

lolA) 

^^!er^ 

Reiljnn-s 

S<ale>& 

T^^lZinrh&  1 

The  various  amounts  are  posted  to  the  credit  of  the  customers'  accounts 
in  the  sales  ledger  and  the  total  of  the  returns  column  is  debited  to  the  sales 
account  in  the  general  ledger  at  the  end  of  the  month,  thus  making  the 
double  entry  just  as  the  total  of  the  sales  debits  is  credited  to  sales  account. 

(j/)  We  now  come  to  another  very  important  feature  in  up-to-date 
accounting  systems,  and  that  is  the  Controlling  account.  A  Controlling,  or 
Adjustment,  account,  is  one  which  exhibits  a  summary  of  the  contents  of  a 


SALES  LEDGER 

CONTROLLING   ACCOUNT. 

Date 

Folio 

Debits 

Date 

Folio 

Credits 

Dr.  Bal. 

Jan,  31 
Feb.  28 

S.  18 
S.  95 

$  9,876  50 
10,742  89 

Jan.  31 
i      .  Feb.  28 

C.    97 
J.     74 
C.  100 
J.     97 

$5,954  62 

897  40 

7,501  25 

552  40 

$3,024  48 
5,713  72 

ledger.     Thus  a  Sales  Ledger  account  is  an  account  exhibiting  a  summary 
of  the  transactions  recorded  in  a  sales  ledger. 

The  debits  represent  the  total  of  the  sales  book  for  the  month,  the  items 
of  which  have  been  posted  to  the  debit  of  the  customers'  accounts  in  the 
sales  or  customers'  ledger.  The  credits  represent  the  total  paid  by  customers 
on  their  accounts  for  the  month,  and  the  total  of  allowances  and  returns,  etc., 
derived  from  the  journal,  and  which  amounts  have  been  posted  from  the  cash 
book  and  journal  to  the  credit  of  the  customers'  accounts  in  the  sales  and 
customers'  ledger. 

Such  accounts  may  be  kept  with  great  advantage  where  a  number  oft 
traveling  salesmen  are  employed,  each  having  a  certain  territory.  In  this 
case  the  sales  ledgers  should  be  subdivided,  so  many  pages  being  allotted  to 
the  customers  of  each  salesman.  Separate  columns  should  be  provided  in 
sales  books,  cash  book  and  cross-entry  journal  for  each  section,  and  a  repre- 
sentative, or  adjustment  account  opened  with  each  section  in  the  general 
ledger  to  which  the  totals  of  columns  in  sales  book,  cross-entry  journal,  and 


18 


cash  book  are  posted  at  the  close  of  each  month.  If  practicable,  it  will  be 
found  more  convenient  to  provide  a  separate  ledger  for  the  section  covered 
by  each  traveler,  and  the  loose  leaf  system  is  admirably  adapted  for  this  pur- 
pose, as  it  can  be  made  just  the  size  to  suit  the  number  of  accounts  to  be 
carried,  and  enlarged  and  diminished  at  will. 

(i8)     The  form  of  ledger  we  recommend  (where  exceptional  circum- 
stances do  not  alter  cases)  would  contain  the  following  columns : 

Date,  Items,  r'oHo,  Debits,  Monthly  Debits,  Debit  Balance. 
Date,    Items,    Folio,    Credits,    Monthly   Credits,    Credit    Balance. 

The  representative,  or  adjustment,  accounts  in  the  general  ledger  will 
at  the  close  of  each  month  show  as  follows : 


J. 

F.  ROBINS  LEDGER 

1900 

Folio 

Debits 

Mo.  Debits 

Dr. 
Balance 

1900 

Folio 

Credits 

Mo.  Credits 

March  31. 

April  so- 
Journal  

Cash 

28 
160 

6,751  20 
129  60 

6,880  80 

7,846  19  ; 
7,631  24 

April  30- 
Cash 

160 

28 

5,967  80 
1,127  95 

Journal 

1 

7,095  95 

This  account,  you  will  note,  displays  the  total  business  of  J.  F.  Robins, 
salesman,  and  its  results,  and  it  can  be  made  still  more  useful  by  a  little 
more  itemizing.  Sales  can  be  kept  separate  from  cross  entries  on  the  debit 
side,  and  on  the  credit  side  returns  and  allowances  may  be  particularized. 
The  increase  of  "Monthly  Debits"  shows  an  increase  of  business,  and  the 
increasing  or  decreasing  "Debit  Balance"  shows  how  the  customers  are 
paying  their  accounts.  So  that  this  account  becomes  a  valuable  comparative 
statement  of  J.  F.  Robins'  business. 

In  taking  the  trial  balance  of  the  J.  F.  Robins  ledger,  draw  off  monthly 
debits,  monthly  credits  and  the  balances,  and  foot  all  three  columns.  Then 
if  the  total  of  the  individual  balances  does  not  amount  to  $7,631.24,  you 
can  see  at  a  glance  whether  your  total  debits  posted  are  $6,880.20,  and  your 
total  credits  $7,095.75.  That  means  that  ninety-nine  times  out  of  a  hundred 
when  there  is  an  error  it  can  be  located  to  the  side  on  which  it  occurred, 
which  is  a  tremendous  advantage. 

The  prmciple  above  outlined  can  be  successfully  carried  out  in  any 
business  with  manifest  benefit.  In  enterprises  of  considerable  magnitude  it 
will  frequently  be  found  convenient  to  have  separate  cash  books,  sales  books, 
etc.,  as  the  use  of  columnar  books  in  such  cases  will  necessitate  books  of  an 
unwieldly  size. 

(ip)  The  accounts  may  be  sectionalized  in  many  ways  as  may  be 
found  most  suitable  to  the  requirements  of  the  business.  Some  houses  sec- 
tionalize  territorially,  as:  New  York  ledger,   Pennsylvania  ledger,   Ohio 

19 


ledger,  etc.,  etc.    Some  sectionalize  alphabetically,  A-F  ledger,  G-K  ledger, 


L-R  ledger,  S-Z  ledger. 


Folio 

Debits 

Mo.  Debits 

Dr.  Bal. 

1900 

Folio 

Credits 

Mo. Credits 

Mar.  31.    Bal.- 

April  30.    Cash— 

N.Y.  ledger... 

N.  Y.  ledger.. 

9,562  75 

234 

8,765  14 

Pa.  ledger.... 

2,758  92 

Fa.  ledger 

234 

2,219  75 

Ohio  ledger... 

6,875  60 

Ohio  ledger.... 

234 

7,550  20 

April  30.  Jour.— 

Journal— 

N.Y.  ledger.. 

178 

10,785  90 

N.Y.  ledger... 

178 

1,118  75 

Pa.  ledger.... 

1V8 

4,560  25 

Pa.  ledger 

178 

652  80 

Ohio  ledger... 

180 

8,972  60 

Ohio  ledger 

180 

678  25 

20,984  89 

Cash- 

N.  Y.  ledger.. 

235 

475  35 

Pa.  ledger.... 

235 

Ohio  ledger... 

235 

96  50 

24,890  60 

Balances— 

N.Y.  ledger.. 

10,940  11 

Pa.  ledger.... 

4,446  62 

Ohio  ledger.. 

7,716  25 

FORM    XIII. 


(20)  A  very  frequent  sectionalization  is  by  departments,  as  Whole- 
sale Ledger,  City;  Wholesale  Ledger,  Foreign;  Retail  Ledger,  etc.,  etc. 

{21)  Where  sales  tickets  are  used  it  will  be  found  useful  to  have  dif- 
ferent colored  tickets  for  each  section. 

Where  there  are  a  number  of  sections  it  is  also  found  useful  to  carry 
the  separate  adjustment  accounts  in  the  general  ledger,  and  group  them  in 
the  private  ledger  for  the  benefit  of  the  principals,  or  officers  of  the  company, 
thus: 


EXERCISES. 

1.  From  Schedule  B,  par.  343,  Thome's  Manual,  pick  out  the 
sales  of  merchandise,  ented  same  up  in  the  shape  of  a  sales  book,  open 
accounts  with  customers  and  post  the  sales  to  the  debit  of  these 
accounts,  post  one-half  of  each  amount  to  the  credit  of  customers  as 
being  cash  received  on  account.  Open  a  sales  account  and  credit  same  with 
the  proper  amount  as  per  instructions  given  in  this  lesson.    Open  a  control- 

20 


ling  account  as  per  instructions  given  in  this  lesson  and  show  a  balance  on 
this  account  which  will  agree  with  the  aggregate  balances  taken  from  the 
customers'  ledger  accounts. 

2.  Draw  form  of  sales  book  for  a  wholesale  store  dealing  in  hats, 
gloves,  boots  and  shoes,  and  men's  furnishing. 

3.  Explain  why  the  form  of  sales  book  illustrated  in  Thome's  Man- 
ual, par.  281,  would  not  be  suitable  for  the  business  referred  to  in  exercise  2. 

4.  On  form  13  we  will  suppose  that  the  ledger  balances  brought  for- 
ward exactly  equal  the  amount  standing  to  the  credit  of  the  New  York, 
Pennsylvania,  and  Ohio  departmental  sales  accounts.  Make  a  trial  balance 
of  these  ledgers  by  incorporating  the  April  transactions. 

This  Trial  Balance  to  consist  of  the  following  accounts:  sales  ledger 
controlling  accounts ;  sales   accounts ;  Cash   account. 

The  balances  brought  forward  are  as  follows: 

DEBIT  BALANCES. 

New  York  Ledger $9,562  75 

Pennsylvania   Ledger    2,758  92 

Ohio  Ledger 6,875  60 

CREDIT  BALANCES. 

New  York  Sales  Account $9,562  75 

Pennsylvania  Sales  Account    2,758  92 

Ohio  Sales  Account 6,875  60 


21 


CHAPTER  III 


Real,  Trading  and  Nominal  Accounts;   Classification  of 
Assets  and  Liabilities. 

(22)  Impersonal  accounts  are  conveniently  divided  as  specified  in 
lesson  1,  into  real,  representative  and  nominal  accounts.  Real  accounts 
represent  assets.  Nominal  accounts  represent  expenditures,  from  which  no 
direct  return  is  expected,  and  are  sometimes  denominated  "revenue"  ac- 
counts. 

Another  class  of  accounts  which  relate  to  both  real  and  nominal  classes, 
are  those  frequently  denominated  "trading"  or  "cost"  accounts,  namely, 
those  accounts  which  relate  to  the  manufacture  of  product  and  the  expendi- 
tures in  connection  therewith.  The  wages  paid  to  operatives  in  a  factory, 
for  example,  are  considered  as  part  of  the  cost  of  the  product  and  are  part 
of  the  value  of  that  product  when  completed. 

As  illustrative  of  these  classes  of  accounts  we  attach  charts,  from  which 
we  believe  our  students  will  be  able  to  acquire  the  facility  of  promptly 
determining  the  nature  of  those  accounts  with  which  they  may  have  to  deal. 

(23)  REAL  ACCOUNTS. 

(24)  ACTIVE    ASSETS. 

Cash 

Accounts  Receivable 

Notes  Receivable 

Bullion 

Live  Stock 

Grain 

Ice 

Coal 

Raw  Material 

Inventories  of  all  kinds  of  Mdse.  on  hand  for  sale. 

Cash. — This  is  an  asset  and  may  include  cash  in  the  office  drawer  and 
in  various  banks. 

Accounts  Receivable  may  include  accounts  with  customers  kept  in 
various  ledgers,  such  as  wholesale  ledger,  retail  ledger,  Illinois  ledger,  etc. 

Notes  Receivable  consists  of  notes  received  from  customers  in  settle- 
ment of  account,  the  particulars  of  which  are  entered  in  a  separate  notes 
receivable  record. 

See  description  of  treatment  of  "Notes  Receivable"  and  "Notes  Pay- 
able" later  on. 

22 


Bullion. — This  is  the  ore  extracted  from  a  gold,  silver  or  copper  mine, 
and  ready  for  shipment  to  consignees. 

Coal. — This  is  the  product  of  the  mine,  ready  for  shipment  to  con- 
signee, or  it  may  be  inventory  of  coal  on  hand. 

Grain. — This  may  consist  of  the  grain  stored  in  elevators  ready  for 
shipment  to  customers,  or  it  may  consist  of  the  inventory  of  grain  on  hand 
in  a  brewery  ready  for  use. 

Ice. — This  may  represent  the  amount  of  ice  manufactured  in  an  ice 
making  plant,  or 'the  ice  stored  in  refrigerators  ready  for  sale. 

Live  Stock. — This  would  consist  of  the  horses  in  a  livery  business, 
or  cattle  on  a  ranch,  etc. 

Raw  Material. — This  would  consist  of  all  supplies  purchased  for  the 
manufacture  of  any  product  to  be  put  on  the  market  for  sale,  such  as  iron, 
steel,  lumber,  etc. 

Inventories. — These  are  the  various  stocks-in-trade  kept  on  hand  for 
sale  to  customers. 

These  are  termed  active  assets  because  they  can  be  easily  realized. 

(25)  REAL  ACCOUNTS   CONTINUED. 

FIXED    ASSETS. 

Right  of  Way 
Road  Bed 
Real  Estate 
Buildings 
Equipment 
Machinery- 
Tools 
Cars 
Poles 
Wires 

Furniture  and  Fixtures 
Stocks  and  Bonds 
Ores 
Patterns 
'  Engines 

Boilers 
Meters 
Construction 
Sinking  Funds. 

Right  of  Way. — This  asset  represents  the  cost  of  procuring  the  right 
to  lay  a  railroad  track,  and  is  usually  purchased  of  a  municipality,  or  similar 
government  authority. 

Road  Bed. — This  represents  the  actual  cost  of  making  the  railroad 
track,  such  as  rails,  ties,  grading,  etc. 

Real  Estate. — This  represents  the  cost  of  land  purchased  for  the 
purpose  of  building  a  factory  thereon,  etc. 

Buildings. — This  represents  the  cost  of  the  buildings  erected  for  pur- 
poses of  manufacture  of  product. 

23 


Equipment. — This  would  represent  on  a  railroad  the  cost  of  the  cars, 
telegraph  poles,  telegraph  or  telephone  wires,  etc. 

Machinery. — This  represents  the  cost  of  machinery  purchased  for 
use  in  a  factory. 

Tools. — This  represents  the  cost  of  any  implements  used  for  specific 
purposes,  such  as  hammers,  files,  saws,  etc. 

Furniture  and  Fixtures. — This  represents  the  cost  of  the  various 
fittings,  cabinets,  etc.,  purchased  for  use  in  an  office. 

Ores. — This  represents  the  value  of  unextracted  ores  which  are  valued 
in  order  to  form  a  basis  of  capitalization. 

Patterns. — These  are  the  models  of  machines,  or  parts  of  machines 
from  which  the  mechanical  work  is  performed. 

Engines. — On  a  railroad  would  form  part  of  the  equipment — in  a 
factory  would  mean  a  gas'  engine  which  drives  the  dynamos,  etc. 

Boiler  is  a  part  of  the  "plant"  of  an  establishment,  plant  being  the 
generic  name  used  to  denominate  all  fixed  machinery  and  appurtenances. 

Meters  represent  the  devices  employed  by  ''light"  companies  for 
recording  the  amount  of  light  consumed. 

Construction,  or  Installation,  represents  the  work  of  installing 
the  machinery  or  constructing  the  buildings. 

Stocks  and  Bonds  represent  investments  outside  of  the  business,  such 
as  the  purchase  of  so  many  shares  of  stock  by  the  American  Manufacturing 
Company  in  the  American  Iron  and  Steel  Company. 

Sinking  Fund  represents  an  outside  investment  for  the  purpose  of 
paying  off  a  loan,  or  bonds,  which  will  become  due  at  a  certain  specified 
time. 

These  assets  are  termed  fixed  assets  because  they  are  not  easily  realiz- 
able, but  are  more  or  less  of  a  permanent  nature. 

(26)  REAL   ACCOUNTS    CONTINUED. 

PASSIVE  ASSETS. 

License 

Charter 

Franchise 

Good  Will 

Bonus 

Patents 

Suspense 

Doubtful  Debts 

Promotion. 

License. — This  represents  the  amount  paid  by  a  saloon-keeper,  or 
barber,  for  the  privilege  of  carrying  on  their  businesses.  This  asset,  like 
others  of  a  similar  nature,  decreases  in  value  as  the  time  which  it  covers 
nears  its  expiration. 

Charter  is  the  amount  paid  to  a  municipality  for  the  privilege  of 

24 


organizing  a  telephone  or  sirriilar  business,  and  putting  in  the  necessary 
equipment. 

Franchise  is  practically  synonymous  with  "charter." 

Good  will  is  the  estimated  value  of  the  patronage  of  a  business,  and  is 
usually  based  on  the  amount  of  net  profits  for  three  or  four  years.  This  is 
not  an  invariable  rule,  however,  as  in  one  case  the  tangible  assets  of  a 
business^  were  purchased  for  $46,000,  while  the  price  paid  for  good  will  was 
$1,900,000.  This  was  an  exceptional  case,  however,  as  the  annual  profits 
exceeded  $250,000. 

Bonus. — This  represents  an  amount  paid  to  the  seller  of  a  business 
over  and  above  the  book  value  of  the  property  sold.  Thus  in  organizing  a 
corporation  for  the  purpose  of  taking  over  a  business  the  original  proprietor 
is  frequently  paid  in  stock,  and  the  bonus  is  the  amount  of  stock  issued  to 
him  in  excess  of  the  book  value  as  previously  explained. 

Patents. — This  account  represents  the  value  of  the  idea  involved  in 
devising  a  certain  article  intended  for  public  use.  The  value  of  a  patent  is 
very  difficult  to  determine,  as  it  may  be  affected  In  various  ways,  such  as  a 
patent  subsequently  obtained  being  an  improvement,  or  the  decline  of  popu- 
larity of  the  article,  or  the  expiration  of  the  time  covered  by  the  patent. 

Suspense. — This  is  a  kind  of  adjustment  account  to  which  is  some- 
times debited  certain  expenditures  which  actually  belong  to  a  future  period 
and  from  which  results  can  only  be  expected  hereafter.  Thus,  an  advertise- 
ment in  the  May  number  of  a  magazine  may  be  paid  for  in  April,  but  as 
no  returns  can  be  expected  until  May,  the  amount  is  carried  in  the  balance 
sheet  as  a  "suspense"  asset. 

Doubtful  Debts. — These  are  usually  deducted  from  the  Accounts 
Receivable  and  shown  separately,  sometimes  at  their  full  amount,  but  usu- 
ally less  a  certain  percentage  which  is  charged  against  the  Profit  and  Loss 
account. 

Promotion. — This  represents  expenditures  in  organizing  a  corpora- 
tion. It  is  usual  to  carry  such  expenditures  as  an  asset  and  charge  off  a 
certain  proportion  each  year  until  the  account  is  extinguished. 

The  above  assets  are  termed  passive  because  their  intrinsic  value  gen- 
erally depends  on  conditions  and  cannot  always  be  accurately  estimated.   . 

{.27)  REAL  ACCOUNTS  CONTINUED. 

FUNDED   LIABILITIES. 

Bonds 

Debentures 

Mortgages. 

Bond. — A  form  of  negotiable  commercial  currency  Issued  chiefly  by 
corporations,  municipalities,  states  and  governments,  but  payable  at  a  speci- 

25 


fied  date  instead  of  at  demand,  and  secured  by  mortgages,  reserve  or  sinking 
fund. 

There  are  many  varieties  of  bonds,  such  as  coupon,  debenture,  pre- 
ferred, dividend,  mortgage,  register,  guarantee,  municipal,  etc. 

Bonds  are  frequently  placed  on  the  public  market  for  sale  through  the 
medium  of  a  trust  company  or  trustees  to  whom  the  mortgage  security  is 
executed.  As  bonds  are  sold,  the  amount,  realized  on  their  sale  is  charged  to 
cash  and  the  liability  credited  to  Bonds  Payable  account. 

Debentures. — "A  debenture  is  a  document  admitting  an  indebted- 
ness. The  term  is  ordinarily  applied  to  the  acknowledgment  given  by  a 
limited  company  for  a  loan  which  it  has  received,  upon  which  it  undertakes 
to  pay  interest  periodically,  and  to  repay  principal  upon  such  terms  as  may 
be  set  forth  in  the  body  thereof. 

"A  mortgage  debenture  is  a  debenture  giving  to  the  inscribed  holder 
thereof,  or  to  bearer,  as  the  case  may  be,  a  charge  upon  certain  assets  of  the 
company  which  rank  in  priority  to  all  other  claims." 

Debentures  are  bonds  issued  for  sale  for  the  purpose  of  securing  work- 
ing capital,  the  interest  on  which  is  a  first  charge  on  profits — i.  e.,  in  priority 
to  preferred  or  other  dividends. 

When  secured  by  mortgage,  they  are  termed  Mortgage  Debentures, 
but  when  not  secured  by  mortgage,  there  is  generally  a  "floating  charge" 
upon  the  business  under  which,  if  the  debentures  are  not  paid  when  redeem- 
able, the  holders  may  apply  for  a  receiver  and  have  their  claims  scheduled 
as  preferences  in  the  winding  up  of  the  business. 

Mortgages  represent  a  liability  by  a  conditional  conveyance  of  prop- 
erty as  security  for  the  payment  of  a  debt  or  performance  of  an  obligation, 
the  said  conveyance  to  become  void  upon  the  due  payment  of  the  debt  of 
performance  of  the  obligation. 

These  liabilities  are  denominated  as  funded,  for  the  reason  that  they 
are  due  at  certain  specified  dates. 

(28)  REAL  ACCOUNTS  CONTINUED. 

FLOATING  LIABILITIES. 

Accounts  Payable 
Notes  Payable 
Unpaid  Dividends 
Unpaid  Salaries. 

Accounts  Payable. — These  are  the  records  of  amounts  due  for 
goods  purchased,  either  in  the  shape  of  raw  material  or  completed  articles, 
ready  for  sale. 

Notes  Payable. — These  represent  the  liability  for  notes  given  in  set- 
tlement of  account. 

Unpaid  Dividends. — In  large  corporations  a  liability  of  this  kind  fre- 

26 


quently  has  to  be  carried  for  a  considerable  time  on  acount  of  the  absence 
of  the  persons  entitled  to  same  and  other  causes. 

Unpaid  Salaries. — This  liability  is  frequently  carried  on  the  books, 
when  they  are  closed  at  the  end  of  a  month  which  happens  to  be  the  middle 
of  a  week.  It  is  evident  that  if  the  closing  occurs  on  Thursday  morning 
the  salaries  and  wages  earned  up  to  Wednesday  night  are  liabilities,  which 
should  be  included  in  any  statistical  record. 

These  accounts  are  called  floating  liabilities  because  they  have  to  be 
paid  on  demand  or  according  to  terms  of  purchase. 

(29)  REAL  ACCOUNTS  CONTINUED. 

CAPITAL  LIABILITIES. 

Capital 

Profit  and  Loss 

Surplus. 

Capital. — This  represents  the  liability  of  the  business  to  the  stock- 
holders who  have  invested  money  therein. 

Profit  and  Loss. — This  represents  the  liability  of  the  business  to  the 
stockholder  for  the  amount  of  profit  made  during  a  certain  period. 

Surplus. — This  represents  the  liability  of  the  business  to  the  stock- 
holders for  the  amount  of  undistributed  profits. 

These  accounts  are  called  capital  liabilities  because  they  relate  ex- 
clusively to  the  investments  and  remuneration  of  stockholders. 

(jo)        real  accounts  continued. 

LIABILITY   RESERVES. 

Liability  Reserves. — In  all  large  businesses  reserves  are  made  in 
respect  to  contingent  liabilities.  In  a  manufacturing  business  it  is  necessary 
to  consider  the  cost  of  maintenance,  and  the  reserve  in  this  case  is  generally 
known  as  depreciation.  Where  bonds  have  been  issued  it  is  not  only  neces- 
sary to  make  a  reserve  for  the  payments  of  the  principal,  but  also  for  the 
interest.  Taxes  are  usually  paid  in  advance,  but  we  have  seen  cases  where 
they  were  not,  and  therefore  a  reserve  account  was  established  to  which 
was  debited  each  month  the  proper  proportion  of  the  liability.  The  usual 
method  of  establishing  a  reserve  against  a  sinking  fund  for  the  purpose  of 
paying  off  a  debt  is  to  credit  a  redemption  fund.  Further  information  on 
this  subject  will  be  given  later. 

(ji)  TRADING  accounts. 

In-freight 

Wages 

Manufacturing  Expense 

Repairs 

Fuel 

Water. 

In-freight. — This  represents  the  cost  of  transportation  of  raw  ma- 
terial in  a  factory,  or  completed  goods  in  an  ordinary  store. 


Wages. — This  represents  the  cost  of  production  so  far  as  the  wages 
of  the  operatives  are  concerned. 

Fuel  and  Water. — This  represents  the  cost  of  coal  or  water  used 
for  producing  power  to  drive  machinery. 

Repairs. — This  represents  the  cost  of  maintaining  machinery  and 
buildings  used  for  manufacturing  purposes. 

Manufacturing  Expense. — This  represents  such  items  as  the  sal- 
aries O'f  the  foremen,  salaries  of  helpers  who  do  not  w^ork  directly  on  pro- 
duction, salary  of  superintendent,  etc. 

The  above  are  called  trading  accounts  because  they  relate  directly  to 
the  cost  of  production,  and  are  real  accounts  to  the  extent  that  the  amounts 
charged  thereto  are  included  in  inventories  as  a  part  of  the  cost  of  the  goods 
inventoried. 

(i^)  NOMINAL  ACCOUNTS. 

Commission 

Out-freight 

Salaries 

Traveling  Expense 

General  Expense 

Administrative  Expense 

Printing 

Stationery 

Rent 

Advertising 

Postage 

Collection  and  Exchange 

Discount 

Legal  Expense 

Insurance 

Taxes. 

Commission. — A  ledger  account  representing  commissions  paid  or 
payable. 

The  book-keeper  wall  find  it  necessary  to  keep  close  watch  of  this  ac* 
count  in  order  to  secure  his  principles  against  paying  commission  on  unre- 
liable accounts,  deductions  for  claims  and  allowances,  rescinded  orders,  etc. 
It  is  therefore  usual  to  carry  a  memorandum  commission  account,  agents  or 
salesmen  being  credited  only  with  commission  as  same  is  earned. 

Commission  paid  is  a  selling  expense  and  is  charged  against  gross 
profit  brought  from  the  trading  account  when  there  is  a  credit  balance. 
When  goods  are  bought  "on  sale"  the  sales  are  not  usually  included  in  the 
trading  account,  but  are  treated  separately.  Commissions  paid  and  com- 
missions received  should  not  be  mixed  in  one  account. 

Out-freight. — This  represents  a  department  of  selling  expense. 

Salaries. — This  represents  the  payment  for  services  outside  of  the 
manufacturing  department. 

Traveling  Expense. — This  represents  the  expenditures  of  the  va- 
rious salesmen  and  solicitors  in  connection  with  the  business. 

28 


Ueneral  Expense. — This  represents  expenditures  which  are  not  re- 
munerative, and  are  therefore  charged  direct  to  Profit  and  Loss.  Thus 
labor  employed  in  manufacturing  is  termed  productive  expense  as  against 
office  labor,  which  is  not  directly  productive,  although  it  shares  in  the  gen- 
eral organization  of  the  going  business  and  should  share  in  the  credit  of 
building  up  and  maintaining  that  business  as  a  going  concern. 

Different  kinds  of  expenditures  should  not  be  dumped  into  a  General 
Expense  account  any  more  than  different  kinds  of  purchases,  sales,  goods 
returned,  etc.,  should  be  dumped  into  a  Merchandise  account.  The  intelli- 
gent merchant  requires  a  comparative  record  of  the  different  classes  of  his 
expenditures  which  will  show  if  they  are  justifiable  considering  the  volume 
of  business,  or  if  they  are  excessive  and  the  result  of  a  careless  and  lax  ad- 
ministration. 

Separate  accounts  should  be  kept  with  advertising,  postage,  salaries, 
express,  selling  expenses,  etc.,  so  that  the  fact  of  their  being  normal  and  not 
extraordinary  may  be  ascertained  at  any  time  w^ithout  the  trouble  of  analyz- 
ing the  Expense  account  by  drawing  off  lists  of  the  different  items  under 
their  separate  headings. 

Where  a  business  is  divided  into  departments,  the  cost  of  administra- 
tion may  be  pro-rated  according  to  the  volume  of  business  done.  If,  for 
instance,  certain  employes  are  engaged  in  working  for  different  departments 
and  an  accurate  account  cannot  be  kept  of  the  time  spent  by  each  employe  in 
each  department,  then  the  cost  of  their  services  may  be  pro-rated  according 
to  the  amount  of  turnover  of  each  department.  Such  percentages  are  fre- 
quently computed  on  gross  sales,  but  it  is  considered  preferable  and  more 
equitable  to  compute  them  on  the  turnover. 

Where  the  distribution  of  expense  to  different  accounts  would  neces- 
sitate a  large  number  of  separate  accounts  the  following  method  has  some- 
times been  adopted,  although  the  advantages  of  such  a  system  do  not  seem 
particularly  obvious,  as  in  the  one  case  the  distribution  is  made  in  the  ledger 
by  means  of  separate  accounts,  and  in  the  other  case  the  distribution  is  made 
in  an  auxiliary  record  book  involving  duplication  of  entries  and  work. 

*Tn  planning  books  for  a  manufacturing  concern  29  sub-heads  have 
been  found.  To  open  29  accounts  in  the  general  ledger,  would  mean  a  heavy 
burden  on  the  book-keeper,  and  a  columnar  arrangement  of  the  cash  book 
with  a  column  for  each  sub-head  would  be  too  unwieldy. 

The  plan  adopted,  therefore,  in  this  case,  is  as  follows : 

"There  is  but  one  ^expense'  column  in  the  cash  book,  the  footings  of 
which  are  carried  along  and  posted  but  once  a  month  to  the  expense  account 
in  the  general  ledger.  This  makes  it  easier  for  the  trial  balance,  by  far, 
than  as  if  there  were  29  separate  expense  accounts.  Then  there  is  a  sepa- 
rate book  for  the  'Distribution  of  General  Expense,'  etc.,  which  is  a  sort  of 

2d 


voucher  record  minus  the  voucher  feature,  and  with  this  difference,  that  the 
names  of  accounts  are  printed  one  below  the  other  at  the  left  hand  margin 
of  the  page,  instead  of  being  printed  across  the  top  of  the  page.  The  rest 
of  the  page  is  ruled  in  columns,  a  column  for  a  day,  into  which  the  items 
are  entered  daily  opposite  the  proper  names,  and  a  daily  footing  made 
which  must  agree  with  the  amount  by  which  the  expense  account  in  the 
cash  book  has  been  increased. 


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1 

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*'When  the  page  is  full  a  cross-addition  is  made  of  each  account  and 
the  grand  total  proved  by  adding  the  several  totals  of  columns  on  the  page. 
The  totals  are  forwarded  to  the  next  page,  and  at  the  end  of  the  month 
transferred  to  the  back  of  the  book  to  columns  headed  January,  February, 
etc.  At  the  end  of  the  year  a  grand  summary  is  made  by  cross-addition. 
The  monthly  totals  must  agree  with  the  expense  account  in  the  general 
ledger. 

"With  a  little  practice  one  can  add  across  the  page  as  quickly  and  as 
accurately  almost  as  down  the  page." 

The  following  advantages  are  claimed  for  this  book : 

First.  The  work  is  condensed  and  a  larger  proportion  of  the  space  is 
utilized. 

Second.  The  printer  does  most  of  the  work.  The  book-keeper  must 
only  fill  in  the  figures. 

Third.  It  is  much  easier  than  posting  to  separate  accounts,  wath  none 
of  the  disadvantages  and  securing  all  the  results  of  a  separate  posting. 

Fourth.  It  shows  the  expense  statistics  in  tabular  form  week  by  week, 
month  by  month,  and  year  by  year,  and  any  desired  reference  or  compari- 
son can  be  made  almost  instantaneously. 

Administrative  Expense. — This  relates  entirely  to  the  work  of  the 
principal  officers  of  a  corporation  in  regard  to  financing  the  business  and 
general  superintendence,  including,  of  course,  their  office  help  and  the  ex- 
pense in  connection  with  the  office  they  occupy. 

30 


Printing. — This  represents  expenditures  on  circular  work,  cata- 
logues, etc. 

Stationery. — This  represents  expense  of  letter  heads,  envelopes,  and 
general  office  supplies. 

Rent. — This  account  should  be  carefully  subdivided  so  that  the  fac- 
tory, or  each  department  of  a  business,  is  charged  with  the  proper  pro- 
portion. 

Advertising. — This  relates  to  the  cost  of  postage  of  all  advertising 
matter,  and  to  the  cost  of  production  of  all  advertising  matter  not  included 
under  the  head  of  printing;  also  cost  of  magazine  and  newspaper  adver- 
tising. 

Postage  relates  to  all  expenditures  in  this  direction  which  cannot  be 
specifically  distributed. 

Discount. — This  is  something  of  a  controversial  question,  but  we 
believe  the  totals  of  the  discount  columns  should  be  closed  into  the  Profit 
and  Loss  account,  and  also  that  in  the  case  of  payment  of  invoices  for  goods 
purchased,  the  gross  amount  should  be  debited  and  the  discounts  recorded 
so  that  the  Profit  and  Loss  account  will  show  the  amount  of  discounts 
gained  from  purchases  and  the  amount  of  discounts  lost  to  customers. 

Legal  Expense. — This  expenditure  relates  to  law  costs  incurred  on 
collections,  etc. 

Insurance  and  Taxes. — These  expenditures  are  offset,  as  previously 
shown,  by  reserves  for  unexpired  time. 

Collection  and  Exchange. — In  a  large  business  it  is  usual  to  keep 
an  account  of  this  kind  because  the  recDnciliation  can  ba  more  easily  made 
with  the  bank  pass  book. 

EXERCISES. 

Specify  two  new  examples  each  of 

Active  Assets. 

Fixed  Assets. 

Passive  Assets. 

Funded  Liabilities. 

Floating  Liabilities. 

Trading  Accounts. 

Nominal  Accounts. 
Explain  the  nature  of  each  example  according  to  the  plan  followed  in 
this  lesson. 


31 


CHAPTER  IV 


Purchase  and  Voucher  Records;   Credit  Journals;   Purchase 
Ledgers ;   Bills  Receivable. 

Books  used  exclusively  for  credit  entries,  consist  of  records  of  various 
kinds  of  purchases,  returns  from  and  allowances  made  to  customers,  and 
records  of  Bills  Payable. 

The  purchase,  or  voucher  record,  will  in  most  businesses,  be  provided 
with  distribution  columns  so  that  it  will  be  possible  to  tell  at  a  glance  how 
much  has  been  purchased  of  different  kinds  of  raw  material,  supplies,  man- 
ufactured goods,  etc. 

The  purchase  department  of  the  business  also  has  charge  of  the  com- 
pilation of  statistical  and  other  information  in  regard  to  where  goods  will 
be  obtained,  prices  and  quotations,  grades,  etc. 

(33)  A  good  many  concerns  from  whom  purchases  are  made,  issue 
catalogues  giving  full  descriptions  and  particulars  of  their  wares.  These 
catalogues  are  filed  in  numerical  order  for  reference  and  a  card  index  is 


2>^-c/4 


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fhe^  -<^/v<. 


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ua 


used  referring  alphabetically  to  the  various  commodities  required,  so  that 
if  we  desire  to  purchase  emery  wheels,  we  look  for  the  guide  card  "Emery 
Wheels"  and  find  that  they  are  sold  by  W.  Jones  and  Company,  the  Ham- 
ilton Emery  Wheel  Company,  and  Smith  and  Robbins  Manufacturing 
Company. 

Catalogues  of  these  concerns  are  numbered  9,  42,  and  206  respectively, 
so  that  we  obtain  complete  information  on  the  subject  of  emery  wheels 
without  delay. 

{34)  The  same  index  is  used  for  a  record  of  business  houses  from 
whom  necessary  supplies  may  be  purchased,  but  who  do  not  issue  catalogues. 


32 


(J5)  In  some  businesses  a  system  such  as  hereunder  described  is 
found  very  convenient  and  efficient.  Instead  of  keeping  the  record  of  pur- 
chases in  a  bound  book  it  is  kept  on  cards  or  heavy  loose  leaf  sheets  of 
paper.  When  goods  are  ordered,  the  orders  are  v^ritten  on  purchase  order, 
as  per  illustration.     This  is  a  thin  order  blank,  and  by  placing  a  carbon 


No.                                          Purcl^ase   Order 
To                                                                             Of 

Please  forward  to  us  dt"  o^u  by^dst  -fre'ifl^t  ^oods  as  per  llje  ^ollowi9^   specl(icfl1ioi)s: 

bate 

Quo  otity 

Particulars 

Price 

AnvoDrsd" 

Total  J 

3-' 

sheet  between  it  and  the  card  a  duplicate  of  the  order  is  obtained  for  filing 
in  the  card  tray.  This  card  tray  is  divided  into  three  sections,  with  guide 
cards  for  each.  The  sections  are  named  "Goods  Ordered,"  "Goods  Re- 
ceieved,"  "Bills  Audited." 

The  original  purchase  order  goes  to  the  party  from  whom  the  goods 
are  ordered. 

The  duplicate  purchase  order  goes  to  the  receiving  and  shipping  room. 

The  purchase  record  is  filed  in  the  card  tray  provided  for  the  purpose 
in  front  of  the  guide  card  marked  "Ordered." 

When  the  goods  are  received  the  shipping  clerk  makes  a  notation  on 
the  purchase  order  he  holds  as  to  date  of  receipt,  quantity  received  and 
condition. 

(  ?d)  The  purchase  order  is  then  compared  with  the  bill,  and  prices 
and  extensions  checked.  The  bill  is  attached  to  the  purchase  order  by 
means  of  a  clip,  and  is  then  replaced  in  the  card  tray  in  the  "received" 
section. 

( J/)  The  bills  are  audited  for  payment  on  the  last  day  of  the  month 
and  removed  to  the  audited  section.  A  recapitulation  is  made  of  the 
amounts  and  the  total  is  credited  to  Accounts  Payable  Controlling  account 
and  debited  to  Purchase  Manufacturing  account,  or  whatever  account  has 
been  provided.  The  recapitulation  sheet  should  be  ruled  so  as  to  contain 
the  distribution  of  the  purchases  to  the  various  material  and  supplies 
accounts  to  which  the  totals  are  to  be  debited. 

It  will  be  seen  from  this  description  that  the  invoices  received  cannot 
only  be  referred  to,  but  information  can  be  obtained  at  a  glance  as  to 
whether  the  bill  of  goods  has  been  received;  as  to  whether  the  goods  are 


33 


according  to  order,  and  the  bill  correct;  as  to  whether  the  bill  has  been 
audited,  or  paid;  and  as  a  matter  of  fact,  no  extra  time  has  been  consumed 
because  it  is  just  as  easy  to  place  the  bill  in  one  file  after  reference  has  been 
made  to  it  as  to  place  it  in  the  file  in  which  it  was  originally  contained. 

Wherever  bills  are  regularly  discounted  and  paid  at  certain  fixed  dates, 
it  is  a  waste  of  time  to  open  separate  ledger  accounts  with  each  concern 
from  whom  purchases  are  made.  The  bills,  attached  to  the  voucher,  should 
be  filed  in  vertical  files,  and  as  all  the  bills  emanating  from  one  house  will 
be  filed  together,  immediate  reference  can  be  obtained  whenever  desired. 

(3^)  The  Purchase  Department  also  keeps  the  stock  records.  These 
are  kept  on  cards  ruled  after  the  style  shown  in  illustration.     When  goods 


are  received  the  quantity  is  entered  on  the  card  and  the  card  is  sent  down 
to  the  storekeeper,  who  fills  in  the  location.  The  card  is  then  returned  to 
the  Purchase  Department. 

On  each  card  is  marked  a  "limit,"  below  which  it  is  inadvisable  to 
allow  the  stock  to  fall.  The  storekeeper  enters  on  the  cards  each  day  the 
quantities  delivered  to  the  factory,  after  which  a  list  is  made  of  goods 
which  have  fallen  below  the  limit.  This  list  is  handed  to  the  general  man- 
ager, who  attends  to  requisition  for  new  supplies. 

(jp)  In  many  businesses  It  Is  considered  desirable  to  combine  the 
purchase  record  and  the  maturity  record,  showing  at  a  glance  when  bills 
become  due  and  must  be  paid  in  order  to  take  advantage  of  discount,  etc. 
In  the  illustration,  the  "Sundries"  column  is  intended  to  include  everything 


34 


which  is  not  a  factor  in  the  cost  of  production,  but  there  should  be  columns 
provided  for  description  and  folio  to  make  it  a  really  satisfactory  form 
for  practical  use. 

{40)  The  credit  journal  is  an  ordinary  form  of  journal  used  for 
recording  returns  from  and  allowances  made  to  customers.  The  items  are 
credited  to  the  customers'  account  in  the  customers'  ledger,  and  the  total 


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at  the  end  of  each  month  debited  to  Sales  account.  This  total  also  goes  to 
the  credit  of  the  Accounts  Receivable  Controlling  account  in  the  general 
ledger. 

(^7)  The  use  of  a  voucher  record  indicates  the  use  of  the  voucher 
system,  and  a  general  description  of  this  system  and  its  advantages  follows : 

Form  No.  1  shows  the  bill  which  in  this  instance  is  dated  March  5, 
1904,  terms  1  per  cent,  ten  days.    The  prices  and  extensions  having  been 


CITY  DEPARTMXNT. 


BOUGHT  OF  FULLER  ife  FULLER  CO. 

WHOLESALE  DRUGGISTS 

Randolph  and  Frai>Klin  Streets 


Ran 


^ 


PAID 

652 

MAR  151904 


/^ 


f^ 


m 


fz 


r^yr 


O.  K.'d  the  voucher  is  made  out  and  the  voucher  number  stamped  on  the 
bill,  together  with  the  word  "paid,"  as  shown  in  illustration. 

Form  No.  2  shows  the  voucher.     These  are  numbered  consecutively 
from  1  to  1000.    After  the  voucher  has  been  made  out,  same  is  entered  in 


35 


the  voucher  journal  and  distributed  to  the  proper  accourU;,  as  shown  on  the 
voucher.  The  voucher  and  bill  is  then  passed  to  the  offiae  manager,  who 
audits  same  and  approves  the  voucher  for  payment. 

Form  No.  3 — This  form  of  voucher  journal  is  the  best  because  it  is 
simple  in  operation  and  sure  in  results.  The  distribution  covers  all  ordinary 
expenditures  and  the  two  extra  columns  on  the  right  hand  of  the  page  are 


BUCK  &  RAYNER,  Ubofrioy 

State  &  Uadlson  Sta, 
CHICAGO 


— ^  Voucher  No.  G  ...^,^'2. —..... 

Month  ol..^S?Pfayrc£,r.... ,.„_„_ \90jfy^ 


Coaect, 


JC 


Approved 


$..^ Date, 

Received  of  BUCK  &  RAYNER,  Uboratory 

ir\  full  of  above  account. 

IWTWRII  TMI»  veUCNBH  WITH  *U  ^KMIW  ATTMNb  «.„.«...-.-..^ — .. 


..I90.„„ 


Dollars, 


sufficient  to  provide  for  any  extraordinary  items  for  which  it  might  be 
desirable  to  open  accounts.    At  the  end  of  the  month  a  journal  entry  is  made, 

Sundries, 

To  Accounts  Payable, 

and  charges  made  against  the  various  accounts  affected,  as  explained  above, 
accounts  payable  being  credited  with  the  total. 

Payment  of  Audited  Vouchers. — When  the  date  of  payment  arrives 
the  voucher  is  removed  from. the  tickler  and  passed  to  a  clerk  who  draws 
a  check  for  same  and  notes  check  number  on  voucher.  The  bill,  voucher 
and  check  is  then  passed  to  the  manager,  who  approves  the  voucher  as 
being  correct,  signs  the  check,  and  puts  his  initial  opposite  the  amount  on 
the  bill.  The  check  and  voucher  is  then  forwarded  to  the  party  in  whose 
favor  it  is  drawn,  and  the  bill  or  bills  filed  in  numbered  folios.  When  the 
voucher  is  returned  properly  receipted  same  is  filed  with  the  bills  in  the 
numbered  folder. 

On  the  credit  side  of  the  cash  book  is  entered  the  date,  voucher  num- 
ber, name  of  payee,  and  the  amount  of  the  check  entered  in  the  accounts 
payable  column.     The  total  of  this  column  is  then  charged  to  accounts 


36 


payable  at  the  end  of  each  month  in  the  general  ledger,  and  the  difference 
between  the  debit  and  credit  side  of  this  account  will  give  the  balance  of 
unpaid  audited  vouchers.  This  can  be  proved  by  footing  the  unpaid  vouch- 
ers in  the  tickler.  The  reconciliation  of  accounts  payable  should  be  made 
at  least  once  a  month,  preferably  when  there  are  few  vouchers  on  hand. 
The  method  of  proving  the  voucher  journal  at  any  other  time  than  the 
closing  period  is  as  follows: 

Balance  of  accounts  payable  as  on  the  1st. 

Add  voucher  journal  footing  to  date 

Total 

Subtract  footing  of  accounts  payable  in  cash  book 

Balance  will  show  total  of  unpaid  vouchers  on  hand. 

There  is  no  necessity  whatever  to  have  columns  in  voucher  journal 
showing  on  what  date  a  voucher  is  paid  as  the  cash  book  gives  this  infor- 
mation if  ruled  up  as  suggested  above. 

By  keeping  a  voucher  journal  along  the  lines  set  forth  only  live  Items 
are  dealt  with:  no  individual  postings  are  made;  proper  distribution  is 


AixJited  \/ovc\)crs 

for 

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M 

orVtK   of 



bate 

tot 

Voucber 
No. 

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Mdse  Purcl)tises 

Cer)CP<jl  Lufjcoscs 

N(nn\e 

Pay  Me 

bnJ$sl  ||Ci^^rs2 

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Salaries  iff  Reot5    |  U^i^  b 

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store 
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Car  Fare  1 1 

Postage  11 

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ow 
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^im^ 

6i^0S.5|                1                1 

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guaranteed,  and  the  cash  disbursements  are  all  entered  in  accounts  payable 
column  instead  of  being  spread  all  over  a  cash  book  with  the  attending 
possibility  of  error. 

Should  the  management  desire  to  make  a  payment  on  account  of  an 
audited  voucher,  a  check  is  drawn  and  the  amount  of  the  check  entered  on 
the  face  of  the  voucher,  stating  the  date  and  noting  the  fact  that  the  check 
is  on  account.    The  voucher  is  not  forwarded  until  the  final  check  is  drawn. 


37 


In  any  event,  the  voucher  number  is  entered  on  the  stub  of  the  check  book- 
so  as  to  complete  the  record  of  the  transaction. 

(4^)  The  advantages  claimed  for  the  Voucher  System  may  be  sum- 
marized as  follows: 

Elimination  of  ledger  accounts  with  creditors. 

Prevention  of  dishonesty  without  collusion  of  several  officers. 

Easy  reference  to  all  data. 

Auditing   facilitated. 

Elimination  of  acknowledgments,  separate  receipts,  statements,  etc. 

No  danger  of  paying  bills  twice. 

(^j)  In  form  5  it  will  be  noted  that  a  maturity  record  is  included, 
and  key  numbers  are  used.     These  key  numbers  are  for  the  purpose  of 


VOUCMER-RECORD 


No' 

~" 

" 

^ 

1 

pp;j     H 

S«T,             F^. 

><      MJ..(UW 

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J             Pc.i 

■JL„  .,«,.    1 

1 

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Form  5. 


saving  labor,  the  numbers  only  instead  of  the  names  of  accounts  being 
endorsed  on  the  back  of  the  voucher  for  guidance  in  entering  the  amounts 
in  the  proper  columns  in  the  voucher  record.  Form  6  shows  a  letter  instead 
of  a  figure  key. 

Purchase  ledgers  are  usually  made  in  the  same  style  as  the  sales  ledger, 
and  the  use  of  controlling  accounts  is  the  same  as  explained  in  lesson  2  in 
regard  to  sales  ledgers. 

(44)  THE  TREATMENT  OF  BILLS  RECEIVABLE. 

When  a  bill  is  received  it  is  numbered  and  the  particulars  entered  under 
the  proper  headings,  together  with  the  amount.  The  register  may  have 
one  name  to  a  page,  two  names,  three  names,  or  four  names,  according  to 
the  space  a  customer  is  expected  to  occupy,  all  the  bills  received  from  the 


38 


customer  being  entered  on  the  page  allotted  to  his  account,  which  is  indexed 
in  the  ordinary  way. 

When  a  bill  is  paid,  it  is  entered  in  the  cash  book  in  a  special  column 
headed  "Bills  Receivable"  and  posted  from  the  cash  book  first  to  the  credit 
of  the  customer's  account  in  the  Bills  Receivable  register  and  ledger,  the 
balance  of  notes  outstanding  being  extended  in  the  balance  column;  and 


THE    HOME    TELEPMONE 

Vouct)er     Record 

ITci^s 

AccouritPoyob 

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T             S.t.h....      T.„p^„„     0,.^.uJ    o.,J.rj..^ 

(S„.li),^g.      M.ii€ln»        C«?«riil          rro"~ 

r.A.„,T,    c.p.o..      E.p.is*     ^i—    ■^ 

^         NO. 

W1,.0 

M^ 

Form  6. 

second,  to  the  credit  of  the  customer's  account  in  the  customers'  ledger. 
This  appears  like  double  posting,  but  as  a  matter  of  fact  the  posting  of  the 
cash  credits  to  the  customers'  accounts  in  the  customers'  ledger  takes  the 
place  of  the  credits  to  the  customers'  accounts  usually  posted  when  the  notes 
are  received. 


Cerifrjf  L  eJgei-  Folio. 


No.  Ui 

rro^«J)o^ 

Address 

PoiT 
Ofti'ce 

wtjece 
Poyfible 

tjdor^. 

AdJrtss 

6ue 

Ap\uDI>t 

bate 
Collp 

T])roi;jl,VYl|<w  hcl^t     folio 

Credits    (5d|ar)c« 

R€r^a^ks 

1 

Make  a  notation  on  the  customers'  ledger  account  that  a  note  has  been 
received,  the  amount,  and  the  folio  in  the  Bills  Receivable  register  and 
ledger  where  particulars  may  be  found. 

In  the  General  Ledger  carry  a  memorandum  summary  account,  entitled 


39 


"Bills  Receivable  Account,"  to  which  only  monthly  totals  are  posted  and 
the  balance  of  which  will  show  the  amount  of  notes  outstanding  which  can 
be  verified  by  taking  an  inventory  of  the  notes  on  hand,  and  will  agree 
with  the  sum  of  the  balances  drawn  off  from  the  Bills  Receivable  Ledger. 

In  order  to  obtain  the  necessary  figures  for  the  memorandum  ''Bills 
Receivable  Account"  in  the  general  ledger  above  mentioned,  a  recapitulation 
sheet  is  used  on  which  is  listed  the  amounts  of  all  bills  as  they  are  entered 
in  the  Bills  Receivable  register  and  ledger,  and  the  amounts  of  all  credits  as 
posted  from  the  cash  book.  At  the  end  of  the  month  these  columns  are 
footed  up  and  the  totals  posted  to  the  debit  and  credit  of  the  memorandum 
Bills  Receivable  account,  the  balance  of  which  must  agree  with  the  total 
of  the  balances  contained  in  the  Bills  Receivable  register  and  ledger,  thus 
proving  the  accuracy  of  the  work  in  that  book. 

It  is  needless  to  add  that  this  memorandum  account  in  the  general 
ledger  is  not  included  in  the  trial  balance,  for  the  reason  that  the  balance 
of  this  memorandum  account  is  already  included  in  the  trial  balance  in  the 
form  of  debits  to  customers'  accounts  which  have  not  been  offset  by  notes 
on  hand. 

The  advantages  of  this  system  consist  in  the  saving  of  labor  and  the 
assurance  of  accuracy. 

Labor  saved — no  journalizing;  no  posting  of  notes  to  Customers'  ledger 
accounts. 

Checks  on  accuracy: — Recapitulation  sheet — total  credits  must  agree 
with  total  of  special  column  in  cash  book.     Bills  Receivable  Ledger — sum 


lb)  lis  nec€ 

RECAPITULATION 

irahlp  -for  JTi  onft^  (yf- 

. 

Ct  edits  hrjnontl)  of^ 

'    '    '                                    .          >  .  , 

I  N5TRDCTION6. 
ToT^lsfDrpvopt^Tabe  d^cirjcdorct-editeclto  fbillb  Receivable  flccov9rip  Ceijer-fllLec^^er: 
Add  Totfll  deb*»T^  \^  M)n\  oj-  last  bfllii9(es,  deduct  credits,  <ii)d  repvflifjdcr  wlir<ij»-ee   witl) 
TtfTal  (^tt)is  n\09tljv' bflUr)ces  (^^6  |3rov€%  rtccurncy  o\"^(l  wor-t\. 

of  outstanding  balances  must  agree  with  balance  of  memorandum  account 
in  Genera]  Ledger  and  with  inventory  of  notes  on  hand. 

40 


EXERCISES. 

Draw  a  form  of  purchase  record  with  distribution  columns. 
Make  entries  therein  of  purchase  of  material,  office  supplies,  etc.,  under 
the  following  headings : 

Advertising.  Lumber. 

Bolts,  Nuts  and  Screws.  Machinery. 

Discount  and  Interest.  Manufacturing  Material. 

Expenses.  Patterns  and  Stencils. 

Furniture  and  Fixtures.  Power. 

Foundry.  Postage. 

Freight.  Paint. 

Iron  and  Steel.  Shop. 

Insurance.  Wages. 

Draw  form  of  general  ledger  and  make  postings  from  purchase  record 
to  credit  of  Accounts  Payable  Controlling  account,  and  debit  of  Purchase 
Distribution  accounts. 

Make  a  list  of  cash  payments  and  post  same  to  debit  of  Account  Pay- 
able Controlling  account. 

Make  a  trial  balance  of  the  work. 

Style  will  be  considered  in  awarding  marks. 


41 


CHAPTER  V 


Preparation  of  Trial  Balance;  Trading  Accounts;  Profit  and 
Loss  Accounts  and  Trial  Balance  Sheets. 

(45)  The  proper  construction  and  intelligent  classification  of  Trial 
Balances,  Trading  Accounts,  Profit  and  Loss  Accounts,  and  Balance  Sheets 
is  a  matter  of  great  importance  to  the  book-keeper  who  desires  to  thor- 
oughly comprehend  the  science  of  accounting  and  to  give  his  employers 
the  best  possible  service. 

Statements  of  this  kind  prepared  without  any  attempt  at  classification 
are  confusing  to  the  business  man  desiring  to  understand  the  details  of  his 
business,  and  the  more  the  items  of  such  statements  are  subdivided  and 
grouped  in  detail,  the  more  information  can  be  obtained  therefrom. 

In  the  first  place,  therefore,  whenever  possible,  the  book-keeper  should 
carefully  classify  and  group  his  nominal,  or  general  ledger,  accounts, 
which  contain  complete  statistics  of  the  business. 

The  asset  accounts  should  be  assembled  together  and  subdivided  as 
per  classification  explained  in  lesson  four — i.  e.,  active,  fixed,  passive. 

The  liability  accounts  should  be  subdivided  into  funded,  floating,  and 
capital,  under  which  latter  head  reserves  would  be  included. 

The  expense  accounts  should  be  assembled  together  and  may  be  sub- 
divided into  selling,  general,  administrative. 

Where  trading  accounts  are  carried  on  the  main  office  books,  they 
should  be  assembled,  probably  consisting  of  raw  material,  labor,  manufac- 
turing expense,  fuel,  freight,  etc. 

Where  the  cost  records  are  kept  at  the  factory,  it  is  usual  to  carry  on 
the  main  ofiice  books  two  accounts,  one  called  Manufacturing  Account,  to 
which  is  debited  all  invoices  for  material  and  supplies,  cash  paid  for  labor, 
etc.  An  account  is  also  kept  called  Manufactured  Stock,  or  subdivisions 
thereof  according  to  requirements,  to  which  are  debited  completed  products 
delivered  from  factory  to  store,  the  cost  value  of  same  being  credited  tp 
Manufacturing  Account. 

For  the  purpose  of  assembling  accounts  in  this  manner,  loose  leaf,  or 
card,  ledgers  are  much  more  convenient  than  bound  books,  for  the  reason 
that  when  accounts  must  be  added  owing  to  the  expansion  of  a  business, 
there  may  be  no  room  to  place  them  in  the  proper  group  in  a  bound  ledger, 

42 


and  the  misplacement  of  such  accounts  interferes  with  the  efficiency  of  the 
system  and  involves  more  work  on  the  part  of  the  book-keeper. 

The  appended  illustration  of  a  nominal,  or  general  ledger,  will  give 
the  student  a  very  good  idea  of  the  way  in  which  such  ledgers  should  be 


j^ea 


ASSETS 


Da^e 

Rar.-t,coUr-A 

t?>l.o 

Debits 

Ci»e<J.-ts|- jje>a.Uoc«= 

i 

... 

arranged.  When  accounts  are  grouped  in  this  way  it  greatly  simplifies  the 
work  of  making  Trading  Accounts,  Profit  and  Loss  Accounts,  and  Balance 
Sheets  from  the  Trial  Balance,  and  this  is  exemplified  in  the  following 
Working  Balance  Sheet,  where  the  amounts  belonging  to  each  statement 
are  easily  assembled  by  transfer  from  the  first  set  of  columns  to  the 
desired  location  in  the  other  columns  on  the  same  line. 

There  being  three  departments  there  are  three  Trading  Accounts,  the 
transactions  in  connection  with  which  are  seen  at  a  glance. 

The  items  constituting  the  Profit  and  Loss  Account  are  together,  as 
also  those  constituting  the  assets  and  liabilities,  the  latter  making  an  intel- 
ligent exhibit  which  should  secure  the  approval  of  any  business  man  looking 
for  information  in  regard  to  the  results  of  his  business  transactions. 

This  Working  Balance  Sheet  also  illustrates  the  inter-relation  of  each 
statement  to  the  other  and  shows  how  the  net  profit  exhibited  in  the  Profit 
and  Loss  Account  agrees  with  the  net  profit,  or  surplus,  exhibited  on  the 
Balance  Sheet,  the  inventories  being  included  in  the  assets  on  the  Balance 
Sheet  and  credited  to  Profit  and  Loss,  with  the  exception  of  the  expense 
inventory,  which  is  deducted  from  the  balance  of  Expense  Account  as  shown 
on  the  trial  balance.  The  operations  of  the  trading  of  the  three  depart- 
ments have  resulted  in  increasing  the  assets  under  the  heading  of  Accounts 
Receivable,  and  the  profits  of  the  business,  amounting  to  $2132.30,  are 
included  in  the  Balance  Sheet  under  that  heading  and  that  of  inventories. 


43 


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44 


Further  illustrations  of  trial  balances  are  presented  for  study  as  fol- 
lows: 

TRIAL  BALANCE. 

ASSETS. 

Cash    $  1,000 

Accounts  Receivable    40,000 

Liventories    Jan.    1st 35,000 

Buildings     50,000 

Plant  and  Machinery 25,000 

Loose  Tools,  etc.  .  r 10,000 

LIABILITIES. 

Accounts  Payable   $    10,500 

Bank    Overdraft    12,000 

Mortgage  Loan   30,000 

Reserve   Against  Bad  Debts 1,200 

Capital  Stock  100,000 

PROFIT  AND  LOSS. 

Salaries     3,500 

Rent,  Taxes  and  Insurance 2,800 

Maintenance  Account,  Buildings  2,000 

Machinery    2,500 

TRADING   ACCOUNT. 

Iron  and   Steel    99,500 

Factory  Supplies  8,000 

Coal  and  Coke    9,000 

In-freight   and    Cartage 8,800 

Wages     37,600                      » 

Bags  and  Packing   3,000 

Factory   Expense    6,000 

Sales     190,000 

$343,700       $343,700 

Inventories   Feb.    1st $  36,000 

TRADING   ACCOUNT. 

Dr.  Cr. 

Inventory   Jan.    1 $  35,000 

Iron  and   Steel    99,500 

Factory   Supplies    8,000 

Coal    and    Coke    9,000 

In-freight   and   Cartage    8,800 

Wages     37,600 

Bags  and  Packing  3,000 

Factory   Expense    6,000 

Sales    $190,000 

Inventory   Feb.    1 36,000 

Gross  Profit  19,100 

$226,000       $226,000 
PROFIT  AND  LOSS  ACCOUNT. 

Gross   Profit  brought  down $19,100 

Salaries    $    3,500 

Rent,  Taxes   and  Insurance 2,800 

Maintenance    Account,    Buildings 2,000 

Machinery    2,500 

Net    Profit    8,300 

$  19,100      $  19,100 
BALANCE  SHEET. 

ASSETS. 

Cash    $  1,000 

Accounts  Receivable   40,000 

Inventories     36,000 

45 


Buildings     50,000 

Plant  and  Machinery 25,000 

Loose   Tools,   etc 10,000 

LIABILITIES. 

Accounts    Payable    $  10,500 

Bank    Overdraft    12,000 

Mortgage    Loan    30,000 

Reserve  Against  Bad   Debts    1,200 

Capital    Stock    100,000 

Surplus    8,300 

$162,000       $162,000 
TRIAL  BALANCE. 

ASSETS. 

Cash     $  7,500 

Cash  at  Bank   12,000 

Accounts    Receivable    6,000 

Bills    Receivable    40,000 

Inventories,    Jan.    1st    33,000 

Factory   Buildings    ...» 50,000 

Plant   and    Machinery    65,000 

Patent    Rights     4,500 

LIABILITIES. 

Accounts  Payable   $    2,000 

Bills   Payable 15,000 

Preference    Stock    100,000 

Common  Stock   60,000 

Reserve   Account    10,000 

Reserve  for  Bad  Debts  2,500 

PROFIT  AND  LOSS. 

General    Expense    $  2,500 

Advertising     1,500 

Commission    900 

Taxes  and  Insurance    2,500 

Salaries    4,000 

Bad   Debts    1,000 

Bank  Charges    500 

Current  Profit  and  Loss $    6,000 

TRADING  ACCOUNT. 

Purchases    $115,000 

Wages     40,000 

Factory   Expense    2,000 

In- freight    and    Duty    3,600 

Sales     $196,000 

$391,500       $391,500 
Inventories,   Feb.    1st    $    36,000 

TRADING  ACCOUNT. 

Inventory  Jan.  1    $  33,000 

Purchases     115,000 

Wages     40,000 

Factory   Expense    2,000 

In-freight  and   Duty 3,600 

Sales     $196,000 

Inventory    Feb.    1 36,000 

Gross  Profit   38,400 

$232,000     $232,000 
PROFIT  AND  LOSS  ACCOUNT. 

Gross   Profit  brought  down $  38,400 

General    Expense     $     2,500 

Advertising     1,500 

Commission" 900 

46 


Taxes  and  Insurance    2,500 

Salaries     4,000 

Bad   Debts    1,000 

Bank  Charges    500 

Current  Profit  and  Loss 6,000 

Net   Profit    31,500 

$  44,400    $  44,400 
BALANCE  SHEET. 

ASSETS. 

Cash     $  7,500 

Cash    at    Bank    12,000 

Accounts  Receivable 6,000 

Bills    Receivable     40,000 

Inventories    36,000 

Factory   Buildings    50,000 

Plant   and   Machinery 65,000 

Patent  Rights    4,500 

LIABILITIES. 

Accounts    Payable    $    2,000 

Bills   Payable    15,000 

Preference   Stock    100,000 

Common    Stock 60,000 

Reserve   Account    10,000 

Reserve  for  Bad  Debts 2^500 

Surplus     31,500 

$221,000     $221,000 
TRIAL  BALANCE. 

ASSETS. 

Cash $  1,450 

Accounts   Receivable    3,090 

Bills   Receivable    700 

Inventories    Jan.    1st 4,400 

Buildings    3,200 

Machinery    800 

Furniture  and   Fixtures 240 

Good-will  1,700 

LIABILITIES. 

Accounts    Payable    $       772 

Bills   Payable    610 

Capital     15,000 

PROFIT    AND    LOSS. 

Taxes     $  274 

Salaries     950 

Traveling  Expense    170 

Postage    104 

General    Expense    90 

Bad  Debts  224 

TRADING. 

Purchases     $  7,100 

Purchase  Returns  $       300 

Sales    10,800 

Sales   Returns    154 

Wages     2,654 

In-freight     182 

$  27,482     $  27,482 
Inventories   Feb.  1st $    3,750 

TRADING  ACCOUNT. 

Inventory  Jan.  1 $    4,400 

Purchases    7,100  * 

Purchase  Retruns  $       300 

47 


Sales     10,800 

Sales    Returns    154 

Wages 2,654 

In-freight     182 

Inventory  Feb.  1 3,750 

Gross  Profit   360 

$  14,850     $  14,850 
PROFIT  AND  LOSS  ACCOUNT. 

Gross  Profit  brought  down $       360 

Taxes    $  274 

Salaries    950 

Traveling  Expense   170 

Postage  104 

General  Expense  90 

Bad  Debts 224 

Loss    1,452 


$     1,812     $    1,812 
BALANCE  SHEET. 

ASSETS. 

Cash    $  1,450 

Accounts  Receivable    3,090 

Bills   Receivable    700 

Inventories    3,750 

Buildings    3,200 

Machinery    800 

Furniture  and  Fixtures    240 

Good-will 1,700 

LIABILITIES. 

Accounts  Payable  $       772 

Bills    Payable    610 

Capital     15,000 

Deficit  1,452 


$  16,382     $  16,382 
TRIAL  BALANCE. 

ASSETS. 

Cash  at  Bank $  15,358 

Accounts    Receivable    77,970 

Bills    Receivable    7,404 

Inventories   Jan.    1st 19,760 

Leasehold  Coal  Mine,  Plant  and  Machinery 600,000 

Construction  Account  11,416 

Horses  and  Wagons   13,383 

LIABILITIES. 

Accounts  Payable  $  73,210 

Reserve   Fund    24,314 

Capital    600,000 

PROFIT    AND    LOSS. 

Discount  and  Allowances  $  13,396 

Salaries    5,499 

Auditors  Fees  and  Law  Charges 3,954 

Taxes  and  Insurance 8,051 

General    Expense    3,741 

Subscriptions  and  Donations 1,790 

Interim    Dividend     45,000 

Undistributed   Profits    18,078 

TRADING  ACCOUNT. 

Wages    $263,647 

Rents   and   Royalties 35,791 

Stores  Supplies    52,044 

Coal  Used   19,752 

Freight  and  Cartage 42,841 

48 


Damages     1,340 

Coal  and  Coke   Sales ^ 526,535 

$1,242,137  $1,242,137 
Inventories  Feb.  1st $  20,500 

TRADING  ACCOUNT. 

Inventory   Jan.    1 $  19,760 

Wages     263,647 

Rents  and  Royalties 35,791 

Stores   Supplies    52,044 

Coal  Used 19,752 

Freight  and  Cartage 42;841 

Damages    1,340 

Coal  and  Coke  Sales $526,535 

Inventory   Feb.   1 20,500 

Gross  Profit  111,860 

$547,035     $547,035 
PROFIT  AND  LOSS  ACCOUNT. 

Gross  Profit  brought  down $111,860 

Discount  and  Allowances    $  13,396 

Salaries 5,499 

Auditors  Fees  and  Law  Charges 3,954 

Taxes  and  Insurance   8,051 

General    Expense    3,741 

Subscriptions   and   Donations 1,790 

Undistributed    Profits    18,078 

Net  Profit   93,507 


$129,938     $129,938 

Profits  Available  for  Dividend $  93,507 

Less  Interim  Dividend 45,000 


Undistributed    Profits    $  48,507 

BALANCE  SHEET. 

ASSETS. 

Cash  at  Bank    ' $  15,358 

Accounts  Receivable  77,970 

Bills    Receivable    7,404 

Inventories    20,500 

Leasehold  Coal  Mine,  Plant  and  Machinery 600,000 

Construction  Account   11,416 

Horses  and  Wagons   13,383 

LIABILITIES. 

Accounts    Payable    $  73,210 

Reserve   Fund    24,314 

Capital    600,000 

Surplus     48,507 

$746,031     $746,031 
TRIAL  BALANCE. 

ASSETS. 

Dr.  Cr. 

Cash    $    6,400 

Accounts    Receivable     3,000 

Bills   Receivable    500 

Inventories    Jan.    1st 3,000 

Furniture  and  Fixtures 600 

LIABILITIES. 

Accounts    Payable    $    2,000 

Bills  Payable   500 

Capital    10,000 

49 


PROFIT    AND    LOSS. 

Expense     $    1,000 

Rent    600 

TRADING. 

Purchases    $  20,000 

Discount  on   Purchases    $    1,000 

Sales     22,000 

Discount  on  Sales   400 

$35,500     $35,500 
Inventories   Feb.   1st ....$    4,200 

TRADING  ACCOUNT. 

Inventory  Jan.  1 $     3,000 

Purchases    20,000 

Discount  on  Purchases $    1,000 

Sales     22,000 

Discount  on  Sales   400 

Inventory   Feb.    1 4,200 

Gross  Profit 3,800 

$  27,200     $  27,200 
PROFIT  AND  LOSS  ACCOUNT. 

Gross  Profit  brought  down $    3,800 

Expense     $  1,000 

Rent    600 

Net  Profit  2,200 

$     3,800    $     3,800 
BALANCE  SHEET. 

ASSETS. 

Dr.  Cr. 

Cash    $    6,400 

Accounts  Receivable    3,000 

Bills  Receivable  500 

Inventories     4,200 

Furniture    and    Fixtures 600 

LIABILITIES. 

Accounts  Payable $    2,000 

Bills  Payable   500 

Capital     10,000 

Surplus    2,200 

$  14,700     $  14,700 


50 


EXERCISE. 

Classify  the  items  of  the  appended  trial  balance,  and  prepare  working 

balance  sheet  showing  Trading  Account,  Profit  and  Loss  Account,  and 

Balance  Sheet  as  per  examples  illustrated  in  this  lesson. 

TRIAL  BALANCE. 

Bills    Payable    $     2,600 

Rents    from   Sub-lettings    190 

Incidental    Expenses    $  500 

Wages    17,540 

Salaries     3,005 

Traveling    Expenses    1,430 

Rent,   Rates  and  Taxes 1,850 

Insurances     90 

Advertising  650 

Commission     245 

Discounts  and  Allowances 700 

Bank  Interest  and   Charges 150 

Bank   Overdraft    950 

Packing,  &c 350 

Sales  and   Charges — Finished   Goods 65,670 

Sales  and  Charges — Repairs,  &c 4,325 

Sales  and  Charges — Packages,  &c 400 

Purchases    10,540 

Plating    4,500 

Sundry  Expenses    (Manufacturing) 4,890 

Bad   Debts    260 

Cash  in  Hand    105 

Sundry  Debtors  20,250 

Sundry    Creditors    2,300 

Inventory  Jan.   1st 9,560 

Bills    Receivable    5,570 

Plant,  Machinery  and  Tools 4,250 

Capital    10,000 

$  86,435     $  86,435 
Inventory  Feb.  1 $    8,350 


51 


CHAPTER  VI 


Preparation  of  Comparative  Statements. 

(46)  The  preparation  of  comparative  statistical  statements  is  one  of 
the  most  important  features  of  the  up-to-date  book-keeper's  work,  as  from 
this  kind  of  a  statement  properly  prepared  the  proprietors  of  a  business  are 
enabled  to  follow  the  progress  made  in  every  department  of  the  business; 
the  increase  or  decrease  of  cost  of  manufacture;  the  increase  or  decrease  of 
non-productive  or  general  expense ;  the  increase  or  decrease,  in  a  given 
period,  of  assets  and  liabilities. 

While  the  average  book-keeper  will  not  have  much  to  do  with  regard 

to  cost  of  product,  the  results  arrived  at  are  usually  presented  to  him  in 

tabular  form  and  included  in  some  way  on  the  books,  forming  a  part  of 

the  Trial  Balance,  Balance  Sheet,  Trading  and  Profit  and  Loss  accounts 

as  shown  in  Lesson  5,  and  now  reproduced : 

TRIAL  BALANCE. 

Bills  Payable  $  2,600 

Rents   from    Sub-lettings 190 

Incidental  Expenses $      500 

Wages    17,540 

Salaries    3,005 

Traveling  Expenses   1,430 

'  Rent,  Rates  and  Taxes 1,850 

Insurances  90 

Advertising   650 

Commission    245 

Discounts  and  Allowances 700 

Bank  Interest  and  Charges 150 

Bank  Overdraft  950 

Packing,  &c 350 

Sales  and  Charges — Finished   Goods 65,670 

Sales  and  Charges — Repairs,   &c 4,325 

Sales  and  Charges — Packages,  &c 400 

Purchases    10,540 

Plating    4,500 

Sundry   Expenses    (Manufacturing) 4,890 

Bad  Debts    260 

Cash   in   Hand 105 

Sundry  Debtors 20,250 

52 


Sundry   Creditors    2,300 

Inventory  Jan.   1st 9,560 

Bills  Receivable 5,570 

Plant,  Machinery  and  Tools 4,250 

Capital    10,000 

$86,435         $86,435 
Inventory  Feb.   1 $  8,350 

In  Th.  M.,  paragraphs  69,  449,  450,  454,  455,  456,  special  attention 
is  devoted  to  the  preparation  of  comparative  statements  of  various  kinds, 
with  numerous  illustrations,  and  the  student's  attention  is  particularly 
directed  to  the  information  therein  contained. 

(For  the  information  of  those  who  do  not  possess  a  copy  of  Thome's 
Twentieth  Century  Book-Keeping  and  Business  Practice,  which  is  now 
furnished  to  all  students  of  the  Course,  we  append  copies  of  some  of  the 
forms  referred  to.) 

{41)  It  will  be  seen  in  order  to  secure,  accurate  information  as  to 
costs  and  expenses  it  is  necessary  to  compute  percentages  so  as  to  show  the 
relative  proportions  of  one  constituent  to  another.  To  make  this  clear  we 
will  take  the  example  of  labor.  The  inclusion  of  $6513.34  under  the  head- 
ing of  "December  31,  1900,"  and  of  $15,630.55  under  the  heading  of 
"December  31,  1902,"  in  the  Trading  account  section  of  Comparative  State- 
ment of  a  Woolen  Mill,  of  itself  gives  very  little  information,  but  when 
we  show  that  $6513.34  is  12-50/100%  of  turnover,  or  value  of  product 
manufactured  in  a  given  period,  and  that  $15,630.55  is  18%  of  turnover 
for  a  similar  period,  it  is  at  once  evident  that  we  are  either  paying  higher 
wages  or  are  not  producing  so  much  for  the  amount  of  wages  paid.  Here 
is  a  definite  condition  very  necessary  to  be  investigated,  because  the  in- 
creased cost  of  labor  as  compared  with  output  of  factory  directly  affects 
the  profits  made  in  the  business,  and  this  comparison  is,  therefore,  of  the 
utmost  value. 

In  like  manner,  referring  to  the  same  comparative  statement,  it  will 
be  noted  that  in  the  same  way  it  is  shown  that  general  expense  decreased 
considerably  in  proportion  to  increase  of  output,  this  being  a  very  healthy 
and  satisfactory  sign. 

In  The  Individual  Home  Study  Course  In  Higher  Accounting  we  go 
into  the  subject  of  the  preparation  of  comparative  statements  with  consid- 
erable detail,  but  while  we  will  endeavor  to  impress  on  students  of  this  Pre- 
liminary Course  the  value  and  necessity  of  being  able  to  prepare  lucid  and 
comprehensive  statements  of  this  kind  In  a  business  of  any  description 
whatever,  we  will  not  make  the  exercises  in  connection  with  this  lesson  as 
difificult  as  those  in  the  advanced  course,  where  students  are  required  to 
create  conditions  and  furnish  suitable  comparative  data  in  connection 
therewith. 

53 


The  question  the  book-keeper  should  ask  himself  when  taking  charge 
of  the  books  of  a  business  is,  What  are  the  vital  elements  of  this  business 
which  concern  the  profits,  and  on  which  the  success  or  failure  of  the  busi- 
ness depends? 

(48)  An  analysis  of  the  trial  balance  above  reproduced  from  Lesson 
5  will  disclose  that  the  business  consists  of  some  kind  of  manufacture, 
goods  so  manufactured  being  sold,  we  will  suppose,  at  certain  standard 
prices  which  do  not  vary  except  under  the  influence  of  close  competition. 
In  this  connection  competition  means  a  reduction  of  selling  price,  and  con- 
sequently a  reduction  of  profits,  and  the  proprietors  of  such  a  business  will 
attach  the  greatest  importance  to  the  possession  of  knowledge  which  will 
enable  them  to  cut  their  profits  without  seriously  endangering  the  existence 
of  the  business.  Our  analysis,  then,  will  show  that  the  purchases  during 
the  month  of  January  amounted  to  $10,540;  wages  of  factory  employes, 
$17,540;  plating,  $4,500;  manufacturing  expense,  $4,890  (rent,  light,  heat, 
non-productive  wages,  foremen  and  superintendents'  salaries,  etc. )  ;  that 
the  inventory  January  1st  amounted  to  $9,560,  and  the  inventory  February 
1st  to  $8,350.00.  We  now  have  the  necessary  information  from  which 
to  obtain  the  turnover  (See  Th.  M.,  paragraph  243  and  Model  Sets),  and 
our  comparison  or  percentages  will  be  based  on  this  turnover. 

(In  some  businesses  it  is  the  custom  to  take  the  sales  as  the  basis  of 
percentage,  but  this  is  an  unsatisfactory  basis,  for  the  reason  that  the 
selling  price  is  liable  to  vary  so  that  the  same  quantity  of  goods  may  be 
sold  at  different  times  at  different  prices,  and  the  comparison  as  to  propor- 
tion of  labor,  manufacturing  expense,  etc.,  would  not,  therefore,  be  based 
on  actual  output,  but  on  the  amount  received  for  quantity  sold.) 

The  turnover  in  the  present  example  will  be  as  follows : 

Inventory  January  1st   $  9,560 

Purchases    10,540 

Wages     17,540 

Plating    4,500 

Manufacturing  expense 4,890 

Total $47,030 

Less  inventory   February  1st 8,350 

Turnover    $38,680 

It  is  evident  from  this  trial  balance  that  the  cost  of  repair  work  is  not 
kept  separately  from  the  cost  of  production  of  manufactured  goods,  and 
we  therefore  include  in  the  Trading  account  total  sales  of  finished  goods 
and  repair  work.  It  is,  however,  highly  desirable  in  businesses  of  this  kind 
to  provide  the  necessary  particulars  for  a  separate  Repair  Trading  account, 
so  that  it  may  be  ascertained  that  a  sufBcient  amount  is  charged  for  repair 
work,  and  that  the  business  is  not  losing  money  in  this  department,  as  fre- 

54 


quently  happens  when  the  superintendent  of  the  factory  makes  estimates 
on  this  kind  of  work  but  fails  to  include  in  the  price  a  proper  percentage 
of  the  expense  of  running  the  business. 

From  the  above  turnover  and  the  amount  of  sales  we  now  find  that 
we  have  disposed  of  goods  costing  $38,680  for  $69,995,  or  a  gross  profit 
of  $31,315. 

We  next  proceed  to  construct  our  Profit  and  Loss  account,  finding  the 
net  profit  to  be  $22,675,  and  are  ready  to  prepare  our  comparative  state- 
ment exhibiting  all  the  information  possible  of  the  results  of  the  month's 


Cor\pQrc\t\'ve  Moi)Tf)ly  5t^TeRef)r. 

Nap\es  of  AccoDt)Ts 

J<n9i)(nry 

Febrydfy  |     M^ircf)      |    A|orri 

M^y         1    Ji;r)e        | 

/fau/M^rer/i7/ 

I05MC 

Labor 

Iptc 

/^/ar/nj 

Mfjoo 

M'fii'^%foenie 

'^K'^o 

/nrejfories 

ifbo 

gysc 

-rjjr-noren 

\f^ 

Croii  r>ro-hr 

1 

"■ 

General  Expense 

C  in  d era  in  ' 

hle'r  f^ro-fr'r 

Con^hetraTi've^^-^^               Cross /^rofr't          ^2%.     P/aT/nq                   i/^o'%    AJ/etfimn  'i^ 
'Percentaaes^^^         Net Prof,-r             5i^o%    /^a  e^henie        n''-^oJo     y-cy^/ 

I £7 hot-                     it5^olo     Tr^vehntj^Kfjense  3 ^<. % 

business.  Thus  we  find  that  the  percentages  of  gross  profit,  net  profit,  cost 
of  raw  material,  cost  of  labor,  etc.,  are  as  shown  on  illustration  of  com- 
parative statement  herein.  We  can  go  still  further  and  furnish  percentages 
of  cost  of  salaries,  traveling  expenses,  commission,  advertising,  packing,  etc. 
We  are  now  in  a  position  to  arrange  a  form  which  will  show  the  varia- 


Cor\[:>flMtiVc  Mor)n)ly  5Ttirer\e()t-  Cf)<nir5. 

Nflmesof- Accoi)t)r$ 

J<nr)ytir5 

/ 

Fe  brvc]  fy 

Marci) 

Apn\       1     M^y 

Jvt)e 

Sryle    ■ 

OvoriTiK  of  lumhei-  uied 

Cosfh^^-  H- 

Coir  of  Lumhet- 

»       ••   Vn-ho/iTif/nc 

L^hor    ^' 

Mfg  £:%her,ie 

Invtrito'^Jei 

-tut-novcr 

■'      Croii  Rropr 

Nvrr\her-  R  re  J  need 

/Ivy.  Coit/:'er-    doz. 

0/0"  Incen  ie 

'^0  ^ecre^se 

Con\batiit'iye 
Pkrcer)Ta<fei 
Of^rvf-noret- 

tions  of  these  percentages  from  month  to  month,  so  that  any  apparent  dis- 
crepancies can  be  immediately  investigated  and  accounted  for. 

The  student  will  note  from  our  Illustration  of  a  comparative  statement 
of  an  Electric  Manufacturing  Company  that  the  totals  and  increase  or  de- 


55 


crease  for  the  month,  or  elapsed  months,  are  given,  but  that  the  person 
furnished  with  this  statement  would  have  to  make  his  own  percentages  in 
order  to  obtain  the  proper  value  from  the  statistics  furnished.  This  form  of 
comparative  statement  is  quite  common,  as  will  be  seen  by  the  other  illus- 
trations referred  to,  but  we  consider  it  imperfect  and  the  statistics  fur- 
nished insufficient. 

We  also  show  a  very  complete  form  of  comparative  statement  of  man- 
ufacturing cost  in  the  wood-working  business  to  which  should  be  added 
columns  for  record  of  percentages  as  above  indicated.  Separate  statements 
should  be  prepared  for  the  different  departments  where  tables  and  lounges 
are  manufactured. 

(4p)     Returning  to  the  trial  balance  which  has  formed  the  basis  of 


Cor\parc\t\\e  MnTer\ef)t  of  Assets  <i()c)Li^b*ililTev 

Ham  of  AccowpB 

Jar^-oary 

Febrvory 

locrease  of 

b€cr€<^ie  of 

Assets       II  Li<ibi  litres 

Assets      flli<lbi|iTfes 

Assets 

liflbilititt 

Assets 

Li  Ob',  lilies 

C£JS/t  Of)  tyciod 

/  f  75 

105 

1 

/¥-7o 

Aaan.ReceiYahle 

15 Is  20 

20150 

/fl,3o 

/3illiRece!rcihle 

If  000 

55^0 

/5lo 

P/(if)r,  en. 

¥200 

J^25o 

k 

fbJlii  PoYdb/e 

3oio 

2laOo 

5-io 

Accn.Peiytihle. 

i5oo 

2^00 

Si)0 

OanK  Overdfafr 

%'^o 

Cf^o 

io25o 

il^o 

iJ^1o 

^,0 

NeflncteaieofAsiefs 

ifpo 

Nethaeaie  afHahiliki 

/^4o 

Svffi/vs 

3fr^c 

this  Lesson,  a  comparative  record  of  the  increase  or  decrease  of  assets  and 
liabilities  should  be  arranged  as  illustrated. 

{S^)  Comparative  statements  are  also  formulated  in  relation  to  the 
work  of  traveling  salesmen,  or  agents  selling  on  commission.  A  good 
form  of  record  of  this  kind  is  shown  in  Th.  M.,  paragraph  461,  and  is  repro- 
duced here.  It  furnishes  full  particulars  in  regard  to  month,  section  of 
territory  covered,  amount  of  sales,  and  as  to  all  selling  expenses  incurred. 
This  form  might  also  be  improved  by  providing  a  percentage  record,  as  it 
would  then  be  so  much  the  easier  to  understand  the  purport  of  the  figures. 

Comparative  statistics  in  regard  to  agents'  commissions  might  be  sim- 
ilarly arranged  to  show  month,  territory  covered,  sales,  commissions  earned, 
and  other  selling  expenses.  Both  of  these  forms  of  statement  are  valuable 
in  the  comparison  afforded  of  the  work  of  one  man  in  a  particular  territory 
against  the  work  of  others  in  the  same  or  different  territory. 


56 


COMPARATIVE  STATEMENT  OF  A  RAILROAD  COMPANY 

ar)(i  ei. 

iQefd/focu'ioa  is  a  rr\or)1i^lu  Con\hciraiTve  Stdter\Qi)f'  erf  /f)corr\e 
l^epJi'tvte    of  CI   f^ailufcii/  Co.  (cl^ief  i7en\s^ 

Jfi)uarLj  /^0J> 

%             <% 

Jcif)V(li-ij  l^oH- 

iQcrense 

I)pcteaS€ 

RECEIPTS. 

45000 

00 

24^1      /rsfjofts                     2t.Sl 

50000 

00 

5000 

00 

if2000 

00 

22.88       a%hor/J                         2|.if8 

ifOOOO 

(iO 

2000 

OO 

D5ooo 

00 

2^.qt,       Loccin-ei'jhfs              32  2  3 

fcoooo 

00 

5ooo 

00 

"^000 

00 

3.81       PatreTs.etc                    2.(,S 

5000 

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200O 

OO 

^oooo 

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lt).34      J^^sseooers                 I2;f)f 

25000 

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5ooo 

OO 

1000 

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,65^       Excess  I^ac/qaqe               .^0 

1^00 

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5'oo 

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100 

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•05      Te/eQi-^f^s                    -Ok 

1^ 

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16 

OO 

5oo 

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.2-]      /^eo/J                              .32 

()00 

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100 

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|.(33     Mi'sce/hoeovs                2.IM 

ifooo 

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l&tl^^" 

00 

1000 

OO 

IOO.00                                                           100.00 

15000 

OO 

M-0.85     Total  a/otKio(l  ^^f)co^e    H2.^1 

SOOOO 

00 

lOJtjoo 

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5^.15"      I^£i/anec                        510} 

loM-j'T 

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5ooo 

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■2r^iU)of/<s/)o/:>           '  „                2.Jfi 

i\6oo 

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5oooo 

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2^.23  Tr^y^r                    ,,              l%5x 

53100 

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Mo.'&5 *Vo  ofRece'ihTs                     >+2.^l 



57 


COMPARATIVE  STATEMENT  OF  A  WOOLEN  MILL 

Dec.3 1.1900. 

Dec.v3l.ISOI. 

Dec.3i.i902. 

Dec.5l.lS03. 

Dn 

Cr. 

br 

Cr 

Dr    1  Cr: 

br 

Cr 

Miiteriol  ACCOU9T5 

Yorn 

&0482 

10 

<]520if 

50 

|if43(A 

»o 

IS0t15 

03 

YorrfStocK 

2531  & 

5lo 

2a8i 

21 

2^433 

u 

^441 

n 

Coltbr) 

U21 

14 

33X^ 

t,l 

3501 

1' 

4Siq 

S3 

Cottbr)VcHT) 

1181 

85 

1331 

04 

l(o04 

II 

1812 

51. 

\A/ool 

I33(.3 

34 

25152 

05 

52qu 

4if 

hqo2i 

5% 

Worited  Yo  »-o  StocK 

302SI 

Si 

M'ff  Cosrs 

Dye^  Sotifo 

1I0I 

1' 

32«1^ 

82 

505if 

3t. 

H02 

81 

OM               ' 

115 

02 

1082 

5U 

1812 

loo 

2t51 

SO 

Mill6D|3|D|[es 

bk-] 

51 

t.3q 

44 

t,02 

08 

22^3 

n 

FdcI 

qti 

2q 

1452 

(>2 

2481 

^8 

354-| 

^1 

Fr€  ifl)t 

I2U 

1 1 

1209 

13 

11^3 

tl 

2201 

4-0 

L^bor 

C5I3 

34- 

q55Jf 

82 

l5i>30 

55 

\lbki/\ 

W 

G  ross  Profit 

20830 

23 

20801 

t,o 

2^411 

(.-] 

24201. 

88 

Ukll 

l£ 

X04X2 

1" 

^5204 

5o 

^5204 

50 

I443(^ 

80 

IU3U 

80 

ho('15| 

05 

^W 

03 

GenercilE:)c|oense 

"^ 

Cross  Profit dowr) 

2O&30 

23 

20801 

fco 

2<)4ll 

^1 

2420  fc 

88 

Ei^bense    . 

1243 

35 

1812 

41 

3400 

2^ 

3151 

3^ 

biscount- 

I25& 

^5 

2242 

^1 

321(, 

11 

%l^ 

84 

Trov.  E")(.|Der)5e 

lObZ 

00 

1320 

55 

loq6 

00 

I2tl 

t)3 

lot^rest- 

13^4 

42 

1258 

33 

IbJ+l 

1^ 

2108 

5i 

Tcixes 

^11 

51 

242 

i5 

^0(\ 

21 

- 

Insurcjoce 

2  (,5 

S8 

244 

38 

l^t, 

loo 

^53 

IG 

bej^hec'iotTor) 

1^53 

IM- 

'M 

82 

Net  Profir 

15134 

ot, 

13^1 

21 

115^1 

11 

'0III 

28 

20830 

23 

20&30 

23 

20^01 

Go 

20801 

fco 

2^4-11 

ia 

2fll 

a 

24204 

88 

2420t, 

E 

Con\|DorcitfYe  Perce 

tci^ej 

or) 

TDri) 

ove 

rr 

ToffllMf^Cosr 

llt,^i+ 

^s 

22^ 

y^ 

l']134 

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24 

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81 

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% 

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7» 

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88 

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i 

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to 

IO,S 

7» 

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^pkk 

> 

52;!; 

% 

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ti 

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% 

10111 

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59 


EXERCISE. 
From  the  trial  balances  presented  hereunder  prepare  forms  of  com- 
parative statement  and  increase  or  decrease  of  assets  and  liabilities,  com- 
puting percentages,  and  showing  turnover. 

TRIAL  BALANCE. 
Assets. 

Jan.        Feb.        Jan.  Feb. 

Cash    $  1,700     $  1,000 

Accounts    Receivable    36,000       40,000 

Inventories  January  and  February  , 32,500       35,000 

Buildings     50,000       50,000 

Plant  an'd  Machinery .'..24,500       25,000 

Loose  Tools,  etc 10,000      10,000 

Liabilities. 

Accounts   Payable    $11,300  $10,500 

Bank    Overdraft    10,000  12,000 

Mortgage   Loan    30,000  30,000 

Reserve  Against   Bad  Debts 1,200  1,200 

Capital  Stock 100,000  100,000 

Profit  and  Loss. 

Salaries    2,000  $  3,500 

Rent,  Taxes  and  Insurance 2,300  2,800 

Maintenance   Account,    Buildings '    2,000  2,000 

Machinery 2,500  2,500 

Trading  Account. 

Iron  and  Steel 05,250  99,500" 

Factory  Supplies 6,600  8,000 

Coal  and  Coke 7,900  9,000 

In-freight  and  cartage 7,500  8,800 

Wages    29,500  37,600 

Bags  and  Packing 2,500  3,000 

Factory  Expense  5,200  6,000 

Sales    135,450       190,000 

$287,950     $343,700  $287,950     $343,700 
Inventories  March  1st. . ., $  36,000 


60 


CHAPTER  VII 


Opening  Entries;  Transfer,  Stock  Discounts. 

5/.  OPENING  ENTRIES. 

When  a  book-keeper  seeking  a  position  calls  on  a  merchant  in  answer  to 
an  advertisement  and  is  informed  that  the  latter  is  organizing  a  corpora- 
tion, and  requires  some  one  competent  to  open  and  keep  a  set  of  books,  the 
applicant  who  has  the  requisite  knowledge  under  his  hat  can  not  only 
respond  affirmatively,  but  proceed  to  convince  the  merchant  that  he  can 
satisfactorily  undertake  the  work.  This  is  the  book-keeper  who  secures 
the  position. 

It  is  just  in  regard  to  information  of  this  character  that  so  many 
book-keepers  have  had  no  actual  experience,  and  their  conception  of  the 
requirements  connected  with  the  opening  of  the  books  is  accordingly  defi- 
cient, and  their  explanation  of  methods  they  would  adopt  in  case  they 
should  be  tried  in  the  position  are,  consequently,  anything  but  convincing 
or  impressive. 

We,  therefore,  propose  in  this  lesson  to  devote  particular  attention 
to  the  illustration  of  opening  entries  in  connection  with  the  starting  of 
new  businesses,  the  transfer  of  businesses  from  one  ownership  to  another, 
and  the  transfer  of  books  from  single  to  double  entry. 

5^  SALE  OF  STOCK   BY  INSTALLMENT   AND   AT   PREMIUM. 

A  corporation  is  organized  to  conduct  a  manufacturing  business.  The 
capital  is  to  be  $100,000.  Subscriptions  to  be  paid  as  follows: — 20  per 
cent  cash  on  application  and  20  per  cent  per  month  for  four  months. 

The  nature  of  the  business  is  to  manufacture  wire  clips  for  which 
machinery  and  tools  are  required. 

Mr.  J.  McMonnies  has  been  working  on  samples  of  clips  which  were 
devised  and  patented  by  him,  and  has  obtained  orders  for  50,000,000  from 
stationers  and  dealers  in  office  supplies  at  60  cents  per  1000.  He  sells  his 
device,  and  his  orders  amounting  to  $30,000,  to  the  new  company  for 

61 


$10,000  cash  and  $50,000  in  stock  in  the  company.  The  profit  expected 
to  be  realized  from  the  orders  on  hand  is  30  cents  per  1000.  The  remainder 
of  the  stock  is  offered  for  sale  at  20  per  cent  premium. 

OPENING  ENTRIES. 
Debits.  Credits. 

Capital    $100,000 

$100,000 Subscription  Account. 

60,000 J.  McMonnies. 

40,000 Treasury    Stock. 

Subscription   Account    100,000 


60,000 Patents,  Goodwill,  and  Contracts. 

J.    McMonnies    60,000 


4,800 Cash. 

4,800 April   Installments. 

4,800 May  Installments. 

4,800 June   Installments. 

4,800 July   Installments. 

X  reasury  Stock   20,000 

Premium   Account 4,000 

It  will  be  particularly  noted  that  the  $60,000  stock  given  to  McMon- 
nies covers  patents,  good-will,  and  contracts.  It  is  evident,  therefore,  that 
when  these  contracts  are  filled,  the  value  of  this  account  will  have  dwin- 
dled to  a  certain  extent,  while  the  profit  on  the  contracts,  $9,000,  will 
have  been  received  by  the  new  company.  It  is  to  be  supposed  that  new 
orders  of  an  equal  or  greater  amount  will  have  been  received  in  the  mean- 
time, but  it  is  generally  considered  best  in  cases  of  this  kind  to  charge  off 
a  certain  amount  annually  against  accounts  of  this  nature.  The  trans- 
action was,  of  course,  effected  with  a  view  to  the  benefit  of  the  business 
in  future  years,  and  each  year  should,  therefore,  bear  a  certain  proportion 
of  the  depreciation  of  a  somewhat  intangible  asset.  If  the  business  con- 
tinues active,  and  there  is  a  greater  demand  for  the  clips,  the  good-will 
does  not  become  seriously  depreciated  and  should  be  treated  accordingly. 

Another  point  is  the  premium  exacted  from  the  purchasers  of  the 
Stock,  because  said  stock  is  considered  a  good  investment.  This  premium 
should  not  be  credited  to  surplus  so  that  it  will  become  available  for 
dividend,  as  it  is  not  the  intention  that  the  purchasers  of  the  stock  who 
pay  the  premium  shall  be  able  to  immediately  withdraw  it  from  the  busi- 
ness. By  crediting  this  amount  to  a  premium  account  it  can  be  used  as 
working  capital  and  stand  on  the  books  as  a  kind  of  reserve  account. 

The  next  thing  to  be  done  is  to  purchase  machinery  for  the  produc- 
tion of  the  clips,  and  furniture  and  fixtures  for  the  office.  As  these  pur- 
chases are  made  accounts  are  opened  for  same  in  ledger.  Productive  labor 
should  have  a  separate  account  from  office  salaries,  and  manufacturing 
and  office  expense  should  be  carefully  distinguished  and  debited  also  to 
separate  accounts. 

62 


At  the  end  of  the  first  six  months,  therefore,  the  balance  sheet  and 
profit  and  loss  account  would  show  something  as  follows : 
•    53.    BALANCE  SHEET. 


ASSETS. 

Cash. 

Accounts  Receivable. 

Bills   Receivable. 

Patents,  Goodwill  and  Contracts. 

Machinery. 

Furniture   and   Fixtures. 

Inventories. 


LIABILITIES, 

Accounts    Payable. 
Bills   Payable. 
Premium  Account. 
Capital  Stock. 
Surplus. 


34-    TRADING  ACCOUNT. 

Inventory. 
Sales. 


'■      OF  THF 

UNIVERSITY 

or 


PROFIT  AND  LOSS  ACCOUNT. 

Gross   Profit  from   Trading. 
Interest  and  Discount. 


Purchases. 
Labor. 
In-freight. 
Packing. 

Pro-rated  Expense. 
Gross  Profit. 

55- 

Office    Supplies. 
Advertising. 
Commission. 
Salaries. 
Rent. 
Etc.,  etc. 
Net  Profit. 

In-freight  represents  part  of  cost  of  wire  for  manufacture.  Packing 
represents  cost  of  paper  boxes,  each  to  contain  a  certain  number  of  clips. 

Sometimes  it  is  desired  to  show  on  the  books  only  the  amount  of  paid 
up  capital.  In  this  case  authorized  capital  is  not  credited  on  the  books  in 
the  first  place,  but  as  subscriptions  are  paid,  cash  is  debited  and  capital 
credited  with  amount  received. 

Assets  turned  over  to  the  purchasers  of  a  business  to  be  paid  for  in 
stock  as  in  the  present  instance  are  considered  as  representing  so  much 
paid  up  stock. 

Taking  the  last  balance  sheet  as  an  example,  the  capital  stock  under 
these  conditions  would  show  as  follows : 

BALANCE  SHEET. 


56. 

ASSETS. 

Cash. 

Accounts  Receivable. 

Bills   Receivable. 

Patents,  Goodwill  and  Contracts. 

Machinery. 

Furniture   and  Fixtures. 

Inventories. 


LIABILITIES. 

Capital  authorized  $100,000  00 

Capital  paid  up $  80,000  00 

Surplus. 

Premium  Account. 
Accounts  Payable. 
Bills  Payable. 


5/.  STOCK    SOLD  AT  DISCOUNT. 

On  the  other  hand,  stock  is  frequently  sold  at  a  discount,  and  this 
presents  another  source  of  difficulty  in  making  opening  entries. 

Take  for  example,  a  piece  of  land  expected  to  produce  oil.    A  com- 


63 


pany  is  formed  to  purchase  a  lease  of  this  land  and  to  develop  oil  wells. 
The  purchasers  of  the  lease  sell  it  to  a  company  for  so  much  stock,  the 
price  including  a  substantial  bonus  for  promotion,  expense,  and  good-will 
of  the  oil  producing  property.  They  set  aside  so  much  stock  for  sale  at, 
say,  50  per  cent  discount  from  par,  with  a  view  to  obtaining  working  cap- 
ital with  which  to  develop  the  property.  What  should  be  done  with  this 
discount  of  50  per  cent? 

It  should  not  be  debited  to  profit  and  loss,  as  in  this  case  the  profits 
of  the  first  few  years  perhaps  would  all  be  swallowed  up,  whereas  the  sac- 
rifice of  value  of  stock  was  made  for  the  benefit  of  probably  many  future 
years'  transactions. 

It  should  not  be  deducted  from  authorized  capital,  because  dividends 
must  be  paid  on  the  full  nominal  value  of  the  stock  sold,  thus,  if  one  buys 
$100  of  stock  for  $50  he  expects  to  receive  dividends  on  $100  not  on  $50, 
and  that  is  one  of  the  reasons  why  the  stock  is  purchased  and  one  of  the 
inducements  held  out  to  buyers.  This  discount  on  stock  should,  there- 
fore, be  carried  on  the  books  as  a  fictitious  asset,  a  certain  amount  being 
charged  off  each  year  until  the  amount  is  extinguished.  The  opening 
entries  in  this  case  would,  therefore,  be: 

Debit  cash  for  amount  received. 

Credit  treasury  stock  with  par  value  of  stock  sold. 

Debit  stock  discount  with  difference. 

^8.      TRANSFER  FROM  ONE  BUSINESS  TO  ANOTHER  AND  TREAT- 
MENT  OF   BONUS. 

The  opening  entries  to  be  made  on  books  of  account  when  a  business 
is  transferred  from  one  owner,  or  set  of  owners,  to  another,  also  frequently 
presents  difficulties  to  the  book-keeper  who  has  not  had  experience  along 
this  particular  Hne. 

Let  us  take  as  an  example  the  business  of  a  single  proprietor  sold  to 
a  corporation,  the  previous  owner  receiving  for  his  interest  the  net  value 
thereof,  plus  a  bonus  of  $5,000,  all  in  stock  of  the  new  company.  The 
new  company  is  capitalized  at  $100,000.  The  net  volume  of  business  taken 
over  is  $60,000.  The  proprietor  of  the  business  purchased  by  the  new  cor- 
poration therefore  receives  in  stock  $65,000  in  payment  of  purchase  price. 
The  remaining  $35,000  is  divided  as  follows: 

C.  J.   Bauer,   subscription $10,000. 

F.  M.  Burr,  subscription 10,000. 

F.  H.  Hill,  subscription 10,000. 

C.  E.  Roberts,  subscription 5,000. 

The  name  of  the  previous  proprietor  of  the  business  being  W.  A. 
Thompson,  the  new  concern  is  incorporated  under  the  name  of  Thompson 

64 


&  Bauer  Manufacturing  Company.    The  statement  of  assets  and  liabilities 
of  W.  A.  Thompson  at  date  of  purchase  is  as  follows : 

59.     W.  A.  THOMPSON'S  BALANCE  SHEET. 

ASSETS.  LIABILITIES. 

Cash     $  6,700  00       Accounts  Payable   $12,575  00 

Machinery    21,500  00       Bills    Payable    15,785  00 

Furniture    and    Fixtures.     1,750  00       Net   Assets    60,000  00 

Horses   and   Wagons 2,900  00 

Inventories     10,785  00 

Accounts    Receivable    . . .  20,975  00 

Bills  Receivable   23,750  00 


$88,360  00  $88,360  00 

PROCEDURE. 
Debits.  •  Credits. 

Capital   $100,000 

$100,000 Subscription  Account. 

60,000 W.  A.  Thompson. 

5,000 Good  Will. 

10,000 C.  J.  Bauer. 

10,000 F.  M.  Burr. 

10,000 F.  H.  Hill. 

5,000 C.   E.   Roberts. 

Subscription  Account   100,000 

(Subscription  Account  is  introduced  in  order  to  make  the  explana- 
tion perfectly  clear,  but  in  actual  practice  in  a  case  of  this  kind  sub- 
scribers might  be  debited  direct  when  capital  is  credited.) 

$  35,000 Cash. 

C.    J.    Bauer $10,000 

F.    M.    Burr 10,000 

F.    H.    Hill 10,000 

C.   E.   Roberts 5,000 

6,700 Cash. 

21,500 Machinery. 

1,750 Furniture  and  Fixtures. 

2,900 Horses  and  Wagons. 

10,785 Inventories. 

20,975 Accounts  Receivable. 

23,750 Bills    Receivable. 

W.   A.    Thompson 88,360 

(Assets  transferred  by  W.  A.  Thompson  to  the  Thompson  &  Bauer 
Manufacturing  Company  as  per  bill  of  sale  dated ). 

Accounts    Payable    $12,575 

Bills  Payable    15,785 

28,360 W.  A.  Thompson. 

(Liabilities  of  W.  A.  Thompson  assumed  by  the  Thompson' &  Bauer 
Manufacturing  Company  as  per  bill  of  sale  dated ). 

W.  A.  Thompson's  account  on  the  ledger  in  the  new  books  will  now 
show  as  follows: 

W.  A.  THOMPSON. 

Stock   subscribed    $60,000      Assets    $88,360 

Liabilities     28,360 


$88,360  $88,360 

The  statement  of  assets  and  liabilities  of  the  new  corporation  at  date 
of  commencement  of  business  will  now  show  as  follows : 

65 


•      THOMPSON  &  BAUER  MANFG.  CO. 
6i.     BALANCE  SHEET. 

ASSETS.  LIABILITIES. 

Cash $  41,700  00       Capital    Stock    $100,000  00 

Accounts    Receivable    . .     20,975  00       Accounts   Payable    12,575  00 

Bills    Receivable     23,750  00       Bills    Payable    15,785  00 

Inventories     10,785  00 

Machinery    21,500  00 

Horses    and   Wagons...  2,900  GO 

Furniture  and  Fixtures.  1,750  00 

Good    Will     5,000  00 


$128,360  00  $128,360  00 

62,      THE  TRANSFER  OF  BOOKS  FROM  SINGLE  TO  DOUBLE  ENTRY. 

The  actual  entries  necessary  in  the  changing  of  books  of  a  firm  or  cor- 
poration from  single  to  double  entry  must  necessarily  vary  according  to 
conditions,  but  the  following  may  be  taken  as  a  general  procedure  to  follow : 

Take  inventory  of  all  assets  and  liabilities,  and  ascertain  actual  sur- 
plus or  deficiency.  Presuming  a  surplus  to  be  found,  this  should  be  com- 
pared either  with  the  proprietor's  or  partners'  investment  account,  or  with 
the  capital  account,  under  whichever  name  this  account  may  be  carried, 
because  the  surplus  of  assets  over  liabilities  represents  the  net  capital  of  a 
business.  If  the  surplus  of  assets  over  liabilities  exceeds  the  investment  or 
capital,  it  then  represents  an  undistributed  profit,  and  should  be  credited  to 
investment  account,  in  the  case  of  single  proprietorship  or  partnership,  or 
to  surplus  account  in  case  of  a  corporation. 

This  having  been  accomplished,  the  book-keeper  is  ready  to  make  a 
new  start.  If  he  is  fortunate  enough  to  have  a  new  set  of  books  to  work 
upon,  he  will  open  accounts  with  all  assets  and  liabilities  as  shown  on  his 
balance  sheet,  or  inventory,  and  open  accounts  also  with  Sales  (credit  entry 
offsetting  accounts  receivable).  Purchases  (debit  entry  offsetting  accounts 
payable).  Cash  (Debit  entry  at  end  of  month  offsetting  excess  of  receipts 
over  expenditures,  the  items  being  entered  in  cash  book,  and  only  the  bal- 
ance being  posted  to  the  ledger  at  end  of  each  month  for  trial  balance  pur- 
poses), and  such  expense  accounts  as  will  indicate  a  proper  classification 
of  disbursements. 

Presuming  that  an  accurate  record  of  Sales  and  Purchases  is  to  be 
found  or  can  be  compiled,  the  proper  method  is  to  open  Sales,  Purchase, 
Inventory,  and  Profit  and  Loss  accounts  in  the  old  books,  closing  Sales, 
Purchase,  Inventory,  Expense,  Discount,  etc.,  accounts  into  Profit  and  Loss, 
and  in  the  case  of  a  single  proprietor,  or  of  a  partnership,  transferring  the 
net  profit  to  the  Capital  account  of  the  business.  Then  open  the  new 
accounts  in  the  new  ledger. 

The  figures  obtained,  however,  will  be  the  same  in  either  event,  as  the 
following  illustrations  will  show: 


62.     SCHEDULE  OF  ASSETS  AND  LIABILITIES. 

ASSETS.  LIABILITIES. 

Cash     $  4,260  00  Stock  Account   $15,000  00 

Accts.    Receivable    7,500  00  Accounts   Payable    1,000  00 

Bills  Receivable   5,720  00  Bills    Payable    1,500  00 

Furniture  and  Fixtures. .  1,740  00  Surplus    $6,370  00 

Inventories     4,650  00 


$23,870  00 


$23,870  00 
64.    PROFIT  AND  LOSS  ACCOUNT. 

Dr.  *  Cr. 

Purchases     $16,210  00       Sales     $22,280  00 

Expense    Accounts    4,600  00       Interest    and    Discount..        250  00 

Net   Profit    6,370  00       Inventories     4,650  00 


$27,180  00  $27,180  00 


EXERCISE. 


Nov.  8th  W.  M.  Whitney  purchased  of  F.  Trueman  the  mens'  furnish- 
ing business  carried  on  by  the  latter  for  the  sum  of  $2,500  as  of  date  of 
Nov.  1st. 

The  assets  and  HabiHties  Nov.  1st  were  as  follows: 

Accounts   Receivable  $2,520— guaranteed  to  realize  $3,000 

Furniture  and  Fixtures   750 

Inventories — 

Hats    325 

Gloves     250 

Hosiery   175 

Accounts   Payable   976 

The  following  transactions  occurred  between  Nov.  1st  and  Nov.  8th : 

Purchased  of  Smith  &  Wilson,  invoice  of  hats $136  70 

Purchased  of  W.  Wallace,  invoice  of  gloves 120  00 

Cash   Sales   of   hats 46  50 

Cash   Sales   of  gloves 38  75 

Cash  Sales  of  hosiery 65  00 

No  credit  sales  were  made  during  this  period. 

Received   from    R.    Crawford $100  00 

Received  from  R.  J.  White 20  00 

Give  opening  entries  on  W.  M.  Whitney's  books,  arranging  the  scheme 
of  accounts  so  that  the  loss  or  profit  on  each  department  can  be  readily 
ascertained. 

Make  Trading  and  Profit  and  Loss  accounts  and  balance  sheet  as  at 
date  of  Nov.  8th  when  actual  possession  is  given  to  Mr.  Whitney.  Expendi- 
tures on  account  of  expenses  and  salaries  during  this  period  amount  to 
$72.50. 

67 


CHAPTER  VIII 


Branch  Stores  Accounts;   Partnerships,  Interest  Formulas. 

(64)      ACCOUNTING    WITH    BRANCH    HOUSES. 

The  accounts  of  branches  may  be  handled  with  a  loose  leaf  system  in  a  way 
to  save  much  time  and  labor.  In  the  Creamery  business,  for  example,  have 
ruled  and  printed  two  forms  fitting  the  ledger  in  use  at  the  home  office.  When 
remittance  is  made  to  a  branch  charge  the  amount  to  Adrian  Branch  balance 
account  in  general  ledger.  Also  open  Adrian  Branch  income  account  (pro- 
vided the  branch  makes  any  collections) ;  open  Adrian  Branch  expense  account; 
open  Adrian  Branch  furniture  and  fixtures  account,  making  four  accounts  only 
for  each  branch.  Entries  to  be  made  in  the  three  latter  once  a  month  only,  same 
being  taken  from  the  ruled  sheets  which  are  received  from  the  branch  once  a 
week.  No  entries  are  made  on  these  sheets  by  the  home  office  until  they  are 
filed  in  the  front  of  the  home  office  general  ledger.  The  line  "for  home  office 
use  only"  being  for  the  home  office  book-keeper  to  bring  forward  the  totals 
from  the  week  previous,  after  checking  up  the  items  with  vouchers  sent  by 
branch  along  with  the  account.  The  numbers  at  the  left  of  items  are  to  put  on 
the  vouchers  for  the  respective  expenditures.  At  the  end  of  the  month  the  foot- 
ings will  show  the  various  expenditures  for  pay  roll,  general  expense,  machin- 
ery, power,  etc.,  etc.  From  these  totals  the  home  office  book-keeper  gets  his 
grand  total  for  Adrian  Branch  general  expense  account,  furniture  and  fixtures, 
etc.  He  makes  a  journal  entry  for  the  month  crediting  Adrian  Branch  balance 
account  and  charging  Adrian  Branch  general  expense ;  and  another  entry  cred- 
iting the  balance  account  and  charging  the  furniture  and  fixtures  account  or 
whatever  title  he  wishes  to  give  the  machinery  and  plant  or  investment  account. 
The  above  entries  are  made  from  the  disbursement  sheet.  The  general  opera- 
tion is  the  same  with  regard  to  the  receipts  with  the  exception  that  no  entry 
is  made  for  the  total  of  "received  from  home  office"  column,  because  that  entry 
is  made  from  the  home  office  cash  book  and  is  posted  to  the  Adrian  Branch  bal- 
ance account.  The  other  totals  of  receipts  are  handled  once  a  month  similar 
to  the  disbursements,  i.  e.,  debit  Adrian  Branch  balance  account;  credit  income 

6S 


account  with  the  total  for  the  month.  The  balances  of  the  four  accounts  above 
mentioned  will  show :  Adrian  Branch  balance  account,  the  balance  on  hand  or 
unaccounted  for  in  hands  of  that  branch ;  income  account,  the  amount  received 
by  the  branch  at  the  town  where  the  branch  is  located;  furniture  and  fixtures, 
or  plant  account,  the  amount  spent  for  fixtures  and  machinery ;  general  expense. 

6gitiof)  Reiaort-fDr  WecK  ELpdir)^  DI6I5UR5tnEiNT6 


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rioi)  Report  for  Week  Erjdio^                                 RECEIPTS 

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' 

roruiahJ 



69 


On  the  "receipts"  sheet  provision  is  made  for  bank  balance,  provided  a  local 
bank  account  is  to  be  opened  in  the  name  of  the  branch.  If  no  local  bank 
account  is  opened  the  ''cash  in  safe"  column  will  show  the  totals  for  the  items 
on  the  respective  receipts  and  disbursement  sheets.  In  the  event  that  a  local 
bank  account  is  carried,  the  two  columns,  as  above,  will  show  balance  in  bank 
and  balance  in  safe  and  the  sum  of  the  two  must  agree  with  Adrian  Branch  bal- 
ance account  in  general  ledger.  The  back  of  the  disbursement  sheet  is  ruled 
in  blank  and  is  to  be  used  for  a  summary  of  expenditures  for  a  period  to  be 
determined  by  the  length  of  the  fiscal  period. 

By  the  use  of  the  system  the  home  office  book-keeper  makes  one  entry  in 
each  general  account  once  a  month;  entries  on  the  balance  account  as  the 
amounts  are  remitted  to  the  branch,  and  foots  up  and  carries  forward  the 
totals  on  the  weekly  sheets  as  they  come  in. 

(6^)       INTEREST. 

Interest  may  be  defined  as  the  amount  charged  for  the  use  of  money, 
usually  on  a  percentum  basis. 

The  following  are  simple  and  practical  rules  for  finding  interest: 

(66)       SIX  PER  CENT.  INTEREST  RULE. 

Divide  principal  by  6.  If  no  cents  are  expressed  in  principal,  place  deci- 
mal one  point  to  the  left,  and  if  cents  are  expressed  in  principal,  place  decimal 
three  points  to  the  left,  which  will  give  the  interest  for  one  day,  which  multiply 
by  the  number  of  days  of  interest  required,  and  the  result  will  be  the  amount 
of  interest  due. 

Example:  Find  interest  on  $1,249.32  for  78  days  at  six  per  cent,  per 
annum. 

Operation:  $1,249.32  divided  by  6  equals  20.822;  multiplied  by  78  equals 
$16.24116.    Answer,  $16.24. 

For  three  per  cent.,  cut  amount  in  two;  for  four  per  cent.,  deduct  one- 
third  ;  for  five  per  cent.,  deduct  one-sixth ;  for  seven  per  cent.,  add  one-sixth ; 
for  eight  per  cent.,  add  one-third ;  for  nine  per  cent.,  add  one-half,  and  for  ten 
per  cent.,  add  two-thirds.  Or,  four  per  cent.,  multiply  interest  by  4  and  divide 
by  6;  for  five  per  cent.,  multiply  interest  by  5  and  divide  by  6;  for  seven  per 
cent.,  multiply  interest  by  7  and  divide  by  6 ;  for  eight  per  cent.,  multiply  by  8 
and  divide  by  6;  for  nine  per  cent.,  multiply  by  9  and  divide  by  6,  or  add  one-half 
amount  of  interest;  for  ten  per  cent.,  multiply  by  10  and  divide  by  6. 

ANOTHER  RULE. 

Required  the  interest  on  $250  for  63  days  at  6%. 

1.  The  rate  for  one  year  is  6%, 

2.  The  rate  for  1-6  year,  or  2  months,  is  1%. 

3.  1%  of  $250=$2.50,  interest  for  60  days. 

4.  Ir20  of  $2.50=$0.12i^,  interest  for  3  days. 

5.  $2,62^  interest  for  63  days. 

70 


((5/)       TWELVE  PER  CENT.   INTEREST  RULE. 

Remove  decimal  in  principal  two  places  to  the  left ;  multiply  by  time  stated 
in  months,  and  decimals  of  a  month ;  multiply  the  product  by  rate  per  cent.,  and 
divide  that  product  by  12. 

We  may  simplify  and  shorten  the  process  by  observing  the  proportion 
which  the  required  rate  bears  to  12.  For  example,  deducting  1/6  from  itself 
from  12  gives  us  10;  deducting  %  of  itself  from  12  gives  us  9;  deducting  1/3 
of  itself  from  12  gives  us  8;  dividing  12  by  2  gives  us  6;  adding  1/6  of  itself 
gives  7;  deducting  1/6  of  itself  from  6  gives  5;  dividing  12  by  3  gives  4,  etc. 

The  following  will  be  found  to  be  excellent  rules  for  finding  the  interest 
on  any  principal  for  any  number  of  days.  When  the  principal  contains  cents, 
point  off  four  places  from  the  right  of  the  result  to  express  the  interest  in  dol- 
lars and  cents.    When  the  principal  contains  dollars  only,  point  off  two  places. 

Four  per  cent. — Multiply  the  principal  by  the  number  of  days  to  run,  and 
divide  by  90. 

Five  per  cent. — ^lultpily  by  number  of  days,  and  divide  by  y2. 

Six  per  cent. — Multiply  by  number  of  days,  and  divide  by  60. 

Seven  per  cent. — Multiply  by  number  of  days,  and  divide  by  52. 

Eight  per  cent. — Multiply  by  number  of  days,  and  divide  by  45. 

Nine  per  cent. — Multiply  by  number  of  days,  and  divide  by  40. 

Ten  per  cent. — Multiply  by  number  of  days,  and  divide  by  36. 

Twelve  per  cent. — Multiply  by  number  of  days,  and  divide  by  30. 

Fifteen  per  cent. — Multiply  by  number  of  days,  and  divide  by  24. 

Eighteen  per  cent. — Multiply  by  number  of  days,  and  divide  by  20. 

Twenty  per  cent. — Multiply  by  number  of  days,  and  divide  by  18. 

Twenty-four  per  cent. — Multiply  by  number  of  days,  and  divide  by  15. 

{68)       A  SIMPLE  INTEREST  FORMULA. 

Interest  may  be  very  easily  understood  and  computed  by  what  might  be 
called  the  Rational  Method.  The  method  has  a  great  advantage  in  following 
the  same  line  of  reasoning  by  which  pupils  solve  such  questions,  as,  "What  is 
the  cost  of  2  bu.  3  pks.  i  qt.  I  pt.  of  beans  at  $1.75  per  bushel?" 

In  that  way  it  makes  interest  but  a  continuation  of  other  subjects,  instead 
of  an  entirely  new  subject  with  a  new  system  of  computation. 

The  rule  is  stated  as  follows:  Find  interest  on  principal  for  one  year  at 
given  rate ;  reduce  months  and  days  to  the  decimal  of  a  year ;  multiply  the  inter- 
est for  one  year  by  the  number  of  years. 

For  example :    Find  the  interest  of  $750  for  2  yrs.  9  mos.  18  days  at  4>^ 

per  cent. 

Divide  18  days  by  30  and  reduce  to  a  decimal. 
30)18.0 

.6  month. 

71 


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$750X.045  gives  interest  for  1  year=$33.75. 
Multiply  $33.75  (interest  for  one  year)  by  2.8  (years)  =$94.50. 
Interest  on  $2,875.75  for  3  yrs.  7  mos.  17  days  at  5i%. 
17^30^.567  month. 


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Multiply  $2,876.75  by  5.5=x. 

Multiply  X  by  3.63=interest  on  $2,875.75  for  3  yrs.  7  mos.  17  days  at  5i%. 

(dp)       THE    EAGLE    PRINTING    COMPANY. 

The  Eagle  Printing  Company  was  organized  Dec.  ist,  1904,  with  a  capital 
of  $10,000,  A.  Johnson  subscribing  $6,000  ($4,000  cash  and  $2,000  plant   and 


73 


machinery),  and  J.  Lang  subscribing  $4,000  cash.  Furniture  and  fixtures  were 
purchased  to  the  extent  of  $490,  and  the  paper  stock  and  shop  supplies  of  a 
bankrupt  printing  company  were  purchased  for  $1,000  (paper  $728.91,  various 
shop  supplies  $271.09).  It  was  agreed  that  Johnson  should  receive  a  salary  of 
$150  and  Lang  a  salary  of  $125  per  month  for  services.  The  rent  of  the  office 
and  shop,  including  power  for  running  presses,  was  $100  per  month. 

We  append  particulars  of  the  transactions  for  the  first  month,  viz.,  sales 
book  (showing  distribution  of  cost  of  work  and  profit  on  same),  schedule  of 
purchases  during  month,  schedule  of  cash  receipts  and  expenditures,  and 
schedule  of  journal  entries. 

The  starting  point  of  the  business  transactions  is  as  follows: 

THE  EAGLE   PRINTING  COMPANY. 

Statement  of  assets  and  liabilities  as  at  date  of  commencement  of  business, 
Dec.  1st,  1904. 

Assets.  Liabilities. 

$6,510  00 Cash. 

2,000  00 Plant  and  machinery. 

1,000  00 Shop  inventory. 

490  00 Furniture  and  fixtures. 

Capital $10,000  00 


$10,000  00  $10,000  00 

SCHEDULE   "a." 

ACCOUNTS   PAYABLE  DEBITS. 

W.  T.  McCormack  $6.00,  allowed  to  J.  H.  Gillett  &  Co.  on  account  of  poor 
quality  of  paper. 

W.  T.  McCormack  $18.00,  allowed  to  G.  W.  Ammerman  &  Co.  on  account 
of  poor  quality  of  paper. 

W.  T.  McCormack  $18.00,  allowed  to  J.  F.  Bell  on  account  of  poor  quality 
of  paper. 

customer's  ACCOUNT  CREDIT. 

One  dollar  and  eighty  cents  allowed  to  W.  T.  Sailing  for  overcharge. 

LIST  OE  CASH   RECEIPTS. 

J.  H.  Gillett  &  Co $  70  65 

G.  W.  Ammerman  &  Co 712  59 

W.  T.  Baker 1  95 

D.  T.  Gillings  315  70 

W.  Moore  18  51 

Detroit  Sanitary  Supply  Company 275  49 

W.T.  Griffin  ......     232  76 

H.  T.  Holbrook 642  10 

W.  T.  Sailing 238  61 

W.  T.  Sailing 613  20 

LIST  OF  DISCOUNTS  ALLOWED  TO  CUSTOMERS. 

W.  T.  Griffin $4  75 

H.  T.  Holbrook 13  10 

W.  T.  Sailing 4  87 


LIST  OF  CASH  DISRURSEMENTS. 

W.  T.  McCormack $1,620  12 

Office  and  supplies 18  00 

Composition 216  78 

Binding 345  39 

Press  work  301  70 

Postage 3  85 

Salaries 275  00 

Rent  and  power 100  00 

DISCOUNTS  DEDUCTED. 

W.  T.  McCormack $85.27 

Note. — Students  will  f.ll  in  date  for  these  transactions. 

SCHEDULE   "b/' 

Dec.  2  W.  T.  McCormack $587  50 

"  2  Page  &  Company 47  83 

"  5  Buffalo  Ink  Co 8  00 

"  12  W.  T.  McCormack 46199 

"  12  Buffalo  Ink  Co 18  00 

"  16  W.  T.  McCormack 310  40 

"  18  Page  &  Company 44  10 

"  19  Page  &  Company 6  43 

"  24  Page  &  Company 360  00 

"  26  W.  T.  McCormack 387  50 

Paper  Stock  was  purchased  from  W.  T.  McCormack;  envelopes  from  Page  &  Co., 

ink  from  Buffalo  Ink  Co. 

The  student  is  requested  to  make  customers*  ledger  rulings  with  special 
balance  column;  open  and  post  sales  to  customers'  accounts. 

Make  forms  of  cash  book  and  journal  and  incorporate  entries  from  schedule 
(A).    Provide  special  columns  in  Cash  Book  for  discounts. 

Make  form  of  purchase  book  and  incorporate  entries  from  schedule  (B), 
providing  distribution  columns  for  paper,  ink  and  sundries,  paper  and  ink 
belonging  to  the  trading  account,  sundries  to  general  expense. 

Post  cash  receipts  to  customers'  accounts  and  cash  payments  to  purchase 
accounts.  ^ 

Make  general  ledger  rulings  similar  to  those  for  customers'  ledger  and 
open  accounts  therein  with  creditors'  and  nominal  accounts,  posting  the  various 
items  relating  thereto  from  schedule  (A).  Open  controlling  account  with  cus- 
tomers' ledger. 

Extend  balances  in  balance  columns. 

Submit  trial  balance  of  work. 

Make  Trading  account,  Profit  and  Loss  account  and  balance  sheet  as 
explained  in  previous  lessons. 

In  Lesson  9  we  will  continue  this  business  for  another  month,  making  com- 
parative statements  of  cost,  general  expense,  sales,  gross  and  net  profit,  etc., 
and  will  declare  a  dividend. 

75 


(/O)       SINGLE   PARTNERSHIPS. 

Where  a  business  is  owned  by  one  person  instead  of  by  a  corporation,  the 
general  methods  of  accounting  would  be  the  same  in  every  particular,  but 
whereas  in  a  corporation  the  capital  always  remains  at  the  authorized  amount 
for  which  the  company  is  incorporated,  in  a  single  proprietorship,  the  net  profits 
are  transferred  from  Profit  and  Loss  account  to  the  credit  of  the  capital  or 
investment  account  of  the  proprietor. 

(/j)       PARTNERSHIPS. 

In  a  business  owned  by  a  partnership  the  procedure  is  the  same  as  in  a 
single  proprietorship,  with  the  exception  that  the  profits  are  divided  proportion- 
ately between  the  partners.  In  the  partnership  deed  there  would  probably  be  a 
provision  whereby  Johnson  would  be  entitled  to  6/ioths  and  Lang  to  4-ioths 
of  the  net  profits  of  the  business.  If  the  partners  receive  salaries  as  remunera- 
tion for  their  services  many  complications  are  avoided,  but  where  no  salaries 
are  provided  for,  the  partners'  drawings  are  subject  to  interest,  unless  other- 
wise provided  for  in  the  partnership  deed. 

The  responsibility  assumed  by  partners  is  summarized  in  Spaulding's  En- 
cyclopaedia of  Law  and  Forms  as  follows : 

"As  a  general  rule,  a  partnership  may  exist  in  any  business  or  transaction 
which  is  not  a  mere  personal  office,  and  for  the  performance  of  which  payment 
may  be  enforced.  It  may  be  created  for  a  special  purpose,  or  confined  by  the 
parties  to  a  particular  line  of  business,  or  even  a  single  transaction.  One  part- 
ner may  contribute  all  the  money  or  all  the  stock,  or  all  the  labor  or  skill  neces- 
sary for  the  purposes  of  the  firm ;  but  in  order  to  make  people  liable  as  partners 
to  each  other,  it  is  necessary  that  there  should  be  a  community  of  profits, 
although  one  of  them  may  stipulate  to  be  indemnified  against  loss.  This,  how- 
ever, respects  their  mutual  claims,  for  however  they  may  stipulate  with  each 
other,  all  who  take  a  share  in  the  profits,  and  all  who  allow  themselves  to  be 
described  and  held  out  as  partners,  are  liable  as  such  to  those  to  whom  they 
have  so  held  themselves  out.  Supposing  the  parties  to  have  become  partners, 
the  result  is  that  each  individual  partner  constitutes  the  others  his  agents  for  the 
purpose  of  entering  into  all  contracts  for  him  in  the  scope  of  the  partnership 
concern,  and  consequently,  that  he  is  liable  to  the  performance  of  all  such  con- 
tracts in  the  same  manner  as  if  entered  into  personally  by  himself.  It  is  not 
essential  to  the  existence  of  a  partnership  that  there  should  be  any  joint  capital 
or  stock.  Sometimes  a  partnership  exists  between  parties  merly  as  the  mana- 
gers and  disposers  of  the  goods  of  others.  A  partnership  is  presumed  to  be 
general  when  there  are  no  stipulations,  or  no  evidence,  from  the  course  of  busi- 
ness, to  the  contrary.  There  may  be  a  partnership  to  trade  in  land.  A  ship 
as  well  as  any  other  chattel  may  be  held  in  strict  partnership.  But  ships  are 
generally  owned  by  parties  as  tenants  in  common,  and  they  are  not,  in  conse- 

76 


quence  of  such  ownership  to  be  considered  as  partners.  The  same  is  true  of 
any  other  species  of  property  in  which  the  parties  have  only  a  community  of 
interest. 

Though  partnerships  are  usually  formed  by  participation  in  profits  and 
losses,  partners  may  agree  as  to  any  way  of  dividing  the  losses ;  that  a  partner 
shall  have  his  share  of  the  profits  and  not  be  liable  for  losses.  And  this  agree- 
ment is  valid  as  between  themselves.  And  this  agreement  will  be  equally  effica- 
cious, whether  stated  in  articles  or  proved  by  circumstances,  or  otherwise.  For 
partners  among  themselves  may  make  whatever  bargain  they  choose.  But  no 
such  agreement  will  prevent  such  partner  from  being  liable  for  the  debts  of  the 
partnership,  unless  the  creditor  knew  of  this  bargain  between  the  partners,  and 
with   this  knowledge   gave  the   credit  to  the   other  partners  only." 

(7^)  Limited  partnerships,  like  corporations,  permit  of  the  investment  of 
capital  in  a  business,  the  responsibility  being  limited  to  the  amount  invested. 
Partnerships  of  this  kind  are  not  provided  for  in  common  law,  but  must  be 
authorized  by  special  state  statutes. 

(7j)  The  general  advantages  of  incorporations  over  partnerships  may  be 
described  as  follows: 

Each  stockholder  is  liable  only  for  the  amount  of  stock  subscribed. 

A  corporation,  whenever  in  need  of  increase  in  the  working  capital,  can 
issue  debenture  bonds,  and  place  same  on  the  public  market  without  giving 
Chattel  Mortgage.  Nobody  knows  what  a  Trust  Deed  may  include,  but  a 
chattel  mortgage  must  be  registered  in  a  Court  of  Record,  which  records  are 
published. 

If  the  management  of  a  company  is  intrusted  to  some  stockholder  who 
proves  to  be  inefficient,  he  may  be  removed  by  vote  of  the  majority  of  the  stock, 
and  some  one  else  appointed. 


77 


CHAPTER  IX 


Opening  Entries;   Use  of  Manifold  Blanks. 

(^4)  We  now  present  the  necessary  particulars  for  a  continuation 
of  the  transactions  of  The  Eagle  Printing  Co.  for  the  month  ending  Jan. 
31st.    These  particulars  consist  of: 

Schedule  A — Order  Register  and  Sales  Book. 

Schedule  B — List  of  Purchases. 

Schedule  C — List  of  Cash  Receipts  and  Expenditures. 

Schedule  D — Journal  Entries. 

Continue  the  forms  and  accounts  prepared  for  the  transactions  of  the 
previous  month's  business,  including  Customers'  Ledger,  Cash  Book,  Journal, 
Purchase  Record,  General  Ledger,  Controlling  Account  with  Customers* 
Ledger. 

Submit  trial  balance  of  work.  Make  Trading  account,  Profit  and  Loss 
account,  and  Balance  Sheet. 

Submit  comparative  statements  as  to  cost  of  production,  general  expense, 
sales,  and  gross  and  net  profit  for  the  two  months. 

From  the  net  profit  declare  a  dividend  after  providing  for  a  reserve  for 
depreciation  of  5  per  cent,  per  annum  on  plant  and  machinery,  and  10  per  cent, 
per  annum  on  furniture  and  fixtures. 

SCHEDULE  "B." 

Jan.    2.     Page  &  Co.,  Envelopes  $13  92 

Jan.    2.     Page  &  Co.,  Paper 302  15 

Jan.    4.     W.  T.  McCormack,  Paper  330  00 

Jan.    5.     Page  &  Co.,  Paper  and  Envelopes  48  75 

Jan.    6.     W.  T.  McCormack,  Paper  555  60 

Jan.    6.     Page  &  Co.,  Envelopes  207  50 

Jan.     6.     W.  T.  McCormack,  Paper   508  70 

Jan.     7.     Buffalo  Ink  Co.,  Ink   75  00 

Jan.     7.     Page  &  Co.,  Paper  and  Envelopes 41  65 

Jan.     8.     Page  &  Co.,  Paper  ard  Envelopes 10  77 

Jan.  12.     W.  T.  McCormack,  Paper  360  00 

Jan.  15.     Page  &  Co.,  Envelopes 300  00 

Jan.  18.     Buffalo  Ink  Co.,  Ink 75  00 

78  • 


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Jan. 

6. 

Jan. 

9. 

Jan. 

12. 

SCHEDULE  "C." 

LIST  OF  CASH   RECEIPTS  AND  EXPENDITURES. 
CASH  RECEIPTS. 

W.  F.  Trescott  $  18  97 

G.  W.  Moore  1  05 

W.  G.  Brown   3  63 

F.  C.  Smith  3  71 

J.  G.  Huber  3  50 

W.  Sommerville   3  78 

A.  Gratz 4  87 

W.  J.  Wilson ...: 2  50 

J.  F.  Moore  46  50 

J.  McLaughlin  81  09 

W.  F.  Whitney 882  00 

2%  discount  18  00 

Jan.  14.     G.  P.  Upton 735  00 

2%  discount 15  00 

D.  F.  Morton 1  46 

Jan.  17.    A.  C.  McLeod  122  00 

Jan.  21.     G.  F.  Sheeley 64  00 

Jan.  23.    W.  C.  Ball  42  50 

F.  C.  Dester 1000  00  on  account 

J.  T.  Wing 500  00  on  account 

SCHEDULE  OF  CASH  PAYMENTS. 

Material   Purchases. 

Jan.  10.     Page  &  Co $  458  36 

Buffalo  Ink  Co 26  00 

Jan.  23.    W.  T.  McCormick  1000  00  on  account 

J.  F.  Moore,  (A.  R.)  3  75 

Jan.  26.     Buffalo  Ink  Co 73  50 

Discount  1  50 

Jan.  30.    Page   &   Co 296  10 

Discount    6  05 

SUNDRY   PAYMENTS   FOR   MONTH. 

Jan.  31.    Repairs  13  00 

Stamps  5  00 

Office   Supplies    21  37 

Salaries  275  00 

Rent  100  00 

TRADING   EXPENSES   FOR    MONTH. 

Jan.  31.     Press  Work  $  912  11 

Binding    681  56 

Composition 100  00 

SCHEDULE  "D." 

JOURNAL    ENTRIES. 

Inventory,   Jan.  31    $690  00 

W.  T.  McCormick,  Dr.  to  J.  T.  Moore,  Cr 3  75 

(Allowance  on  defective  paper.) 

LABOR   ACCRUED  BUT    NOT   DUE. 

Binding 71  15 

Press  Work  18  14 

(/j)      ILLUSTRATIONS  OF  OPENING  AND  CLOSING  ENTRIES. 

John  R.  Smith  and  A.  Reynolds  desire  to  turn  their  partnership  business 
into  a  corporation.  It  is  decided  to  incorporate  the  company  with  a  capital 
of  $75,000 — 750  shares  at  $100  per  share. 

The  assets  and  liabilities  of  the  partnership  are  as  follows : 

ASSETS.  LIABILITIES. 

$10,000     Machinery  and  Fixtures 
8,000     Cash  on  Hand  and  at  Bank 

80 


18,500      Plant  and  Building 
16,000      Merchandise  Inventory 
2,000     Accounts  Receivable 

Accounts  Payable,  $24,000 

John  R.  Smith  subscribed  for  450  shares. 

Allen  Reynolds  subscribed  for  300  shares. 

In  considering  the  opening  entries  for  this  corporation,  it  will  be  observed 
that  the  partners  of  the  old  business  are  only  worth  $30,500,  while  on  the 
other  hand  they  subscribe  for  the  whole  of  the  capital  stock.  It  is,  therefore, 
evident  that  they  will  either  pay  cash  for  the  balance  of  their  stock  accounts, 
or  will  place  some  approximate  value  on  the  good-will  of  the  business,  which 
will  enable  them  to  show  the  value  of  the  stock  as  paid  in  full.  For  the  sake 
of  this  example  we  will  suppose  the  good-will  is  valued  at  $20,000,  and  will 
proceed  as  follows: 

In  a  case  of  this  kind,  where  the  personnel  of  the  management  of  the 
business  is  not  changed,  it  is  not  usual  to  open  a  complete  set  of  new  books. 
The  accounts  receivable  transferred  to  the  new  corporation,  and  the  liabilities 
assumed  by  the  new  corporation  can  be  taken  at  their  face  value  according  to 
ledger,  unless  otherwise  specified,  and  these  accounts  can  be  carried  along 
without  change. 

With  regard  to  the  representative,  real,  and  nominal  accounts,  it  is  bet- 
ter to  transfer  them  to  a  new  ledger  usually  termed  a  "General  Ledger"  as 
described  and  illustrated  in-Th.  M.  It  is  also  advisable  to  record  the  transfer 
in  the  regular  cross  entry  journal  of  the  business,  preceding  it  by  a  recital  of 
the  general  conditions  of  the  transfer. 

In  this  particular  case  the  partnership  transferred  to  the  corporation 
assets  to  the  amount  of  $54,500,  and  liabilities  to  the  amount  of  $24,000.  The 
net  interest  of  the  partners  in  the  business,  therefore,  is  $30,500.  In  this 
instance,  we  have  not  mentioned  the  respective  interests  of  the  partners,  but 
will  suppose  they  are  in  the  proportion  of  450  to  300  shares  of  the  capital 
stock. 

The  opening  entries  will  therefore  be  as  follows : 

Dr.  Cr. 

Capital   Stock,  $75,000 

Subscription  Account, 
$45,000  J.  H.  Smith,  450  shares 

30,000  A.  Reynolds,  300  shares 

Assets  transferred  to  the  new  corporation  by  Smith  &  Reynolds. 

$10,000  Machinery  and  Fixtures 

8,000  Cash  on  Hand  and  at  Bank 

18,500  Building  and  Plant 

16,000  Merchandise  Inventory 

2,000  Accounts  Receivable 

Liabilities  assumed  by  the  new  corporation. 

Accounts   Payable    $24,000 

J.  H.  Smith's  Stock  Account 30,300 

A.  Reynold's  Stock  Account , , 20,200 

81 


These  accounts  now  stand  debited  with  the  balance  of  the  capital  stock 
subscribed  but  not  paid,  viz.,  $24,500,  and  this  amount  it  is  supposed  they  will 
contribute  later. 


J.  Robinson,  F.  Smith  and  J.  F.  Rock  have  been  carrying  on  business 
under  a  partnership  deed,  the  net  assets  of  the  firm  amounting  to  $93,000. 
They  propose  to  incorporate  with  a  capital  stock  of  $100,000,  to  be  divided 
into  preferred  stock  $50,000  (guaranteed  6  per  cent.),  common  stock  $50,000. 
The  partners  are  to  receive  50  per  cent,  preferred  stock  and  50  per  cent,  com- 
mon stock  in  payment  for  their  interest  in  the  assets  of  the  partnership  which 
are  to  be  transferred  to  the  new  corporation. 

The  partnership  proportions,  and  stock  issued  to  them  in  accordance 
therewith  are  as  follows: 

J.  Robinson's  interest  $48,000,  takes  240  shares  preferred  stock  and  240 
shares  common  stock. 

F.  Smith's  interest  $22,500,  takes  112^  shares  of  preferred  stock  and 
112^  shares  common  stock. 

J.  F.  Rock's  interest  $22,500,  takes  1121/2  shares  of  preferred  stock  and 
112^  shares  of  common  stock. 

J.  Gilbert  purchases  35  shares  of  common  stock. 

F.  Smith  holds  a  note  of  $2,000,  for  which  the  firm  is  liable.  He  sub- 
scribes for  20  shares  of  preferred  stock,  giving  this  note  as  payment  for  same. 

J.  Robinson  purchases  15  shares  of  preferred  stock  for  cash. 

Taking  the  preceding  illustration  as  an  example,  the  opening  entries  would 

be  as  follows: 

Dr.  '  Cr. 

Capital  Stock — 


Preferred, 

$50,000 

Common, 

50,000      . 

<t1AAAAft 

SUBSCRIPTION  ACCOUNTS. 

J.  Robinson — 

$  25,500 

Preferred 

24,000 

Common 
F.  Smith- 

13,250 

Preferred 

11,250 

Common 
L.  F.  Rock- 

11,250 

Preferred 

11.250 

Common 
J.  Gilbert 

3,500 

Common 

Assets  transferred  to  the  new  corporation: 
$123,500     Gross  Assets 

Liabilities  assumed  by  the  new  corporation: 

Accounts  Payable,  $  30,500 

(Including  note  of  Smith,  $2,000) 

J.  Robinson,   Stock  Account,  48,000 

F.  Smith,  Stock  Account,  22,500 

J.  F.  Rock,  Stock  Account,  22,500 

82 


$    2,000     Accounts  Payable, 

F.  Smith,  Stock  Account,  2,000 


5,000     Cash 

J.  F.  Rock,  Stock  Account,  3,500 

J.  Robinson,  Stock  Account,  1,500 


W.  C.  Caldwell  and  E.  M.  Ainsworth  carrying  on  business  under  the 
style  of  Caldwell  &  Ainsworth  decide  to  incorporate.  Caldwell's  investment 
account  shows  a  credit  of  $7,810.17.  Ainsworth's  investment  account  shows 
a  credit  of  $1,663.62.  It  is  decided  to  incorporate  for  $15,000.  Good-will  is 
valued  at  $2,500,  this  representing  an  addition  to  the  net  assets  of  Caldwell 
and  Ainsworth  as  shown  by  their  investment  accounts. 

There  is  an  amount  due  a  traveling  salesman  on  the  books  of  $500.  The 
salesman  agrees  to  accept  stock  to  that  amount  in  settlement. 

Mrs.  Ainsworth  loaned  the  old  firm  the  sum  of  $500  on  a  note.  She  also 
agrees  to  accept  stock  for  that  amount  in  settlement. 

The  balance  of  the  stock  is  to  be  disposed  of  as  opportunities  may  arise. 

On  the  books  of  the  old  firm  an  account  is  opened  for  good-will,  this  being 
debited  with  $2,500.  The  partners  are  credited  with  their  proportion  of  same, 
based  on  their  respective  interests  as  shown  by  the  partnership  accounts,  viz.: 

Caldwell  $2,060.99,  Ainsworth  $439.01,  making  Caldwell's  total  invest- 
ment $9,871.16  and  Ainsworth's  total  investment  $2,102.63. 

OPENING    ENTRIES. 

Dr.  Cr. 

Capital  Stock,  $15,000  00 

$10,000  00  Caldwell  Stock  Subscribed 

2,100  00  Ainsworth  Stock  Subscribed 

500.00  Mrs.  Ainsworth   Stock  Subscribed 

500  00  W.  Jack  Stock  Subscribed 

1,900  00  Treasury   Stock 


Assets  transferred  by  Caldwell  and  Ainsworth  to  the  new  coiypany, 
as  per  schedule: 
$  18,517  04 

Liabilities  of  Caldwell  and  Ainsworth  assumed 

by  the  new  company,  $  6,543  25 

128  84      Caldwell's  Personal  Account  (to  adjust) 
Caldwell's  Stock  Account, 
Ainsworth's  Stock  Account, 
Ainsworth's  Personal  Account  (to  adjust), 


$  18,645  88      . 

500  00     Accounts  Payable,  W.  Jack 

Jack's  Stock  Account, 
500  00     Notes  Payable 

Mrs.  Ainsworth's  Stock  Account, 


10,000  00 

2,100  00 

2  63 

$18,645  88 

$   500  00 

500  00 

A.  P.  Lord  is  the  proprietor  of  a  small  business,  which  is  valued  at  $4,000, 
the  assets  consisting  of  tools  and  fixtures  $2,000,  good-will  $2,000.  He  pro- 
poses to  admit  F.  W.  Mooney  as  a  partner,  who  will  purchase  a  one-half 
interest  for  $2,000. 

The  $2,000  invested  by  F.  W.  Mooney  belongs  to  A.  P.  Lord  personally, 

83 


and  he  loans  it  to  the  new  firm,  taking  the  firm's  note  at  12  months,  it  being 
purposed  that  later  on  F.  W.  Mooney  will  invest  another  $2,000,  in  which  case 
A.  P.  Lord  will  also  invest  the  $2,000  loaned  by  him  to  the  business,  making 
the  total  capital  of  the  firm  $8,000. 

OPENING  ENTRIES. 

Dr.  Cr. 

$  2,000     Tools  and  Fixtures 
2,000    Good  Will      ' 

A.  P.  Lord's  Investment  Account,  $  2,000 

A.  P.  Lord's  Personal  Account,  2,000 


2,000     Cash 

F.  W.  Mooney's  Investment  Account,  2,000 

2,000    A.  P.  Lord's  Personal  Account 

Notes  Payable  Account,  2,000 


The  necessary  journal  entries  when  F.  W.  Mooney  makes  his  other  invest- 
ment, and  loan  from  A.  P.  Lord  is  transferred  from  Notes  Payable  to  the 
credit  of  his  Investment  Account  are  simple,  and  need  not  be  here  detailed. 


The  J.  L.  Rose  Company  has  been  organized  to  purchase  the  business  of 
K.  S.  Donovan,  the  latter  transferring  to  the  J.  L.  Rose  Company  his  stock  on 
hand  and  other  assets  as  per  inventory  amounting  to  $26,000,  the  J.  L.  Rose 
Company  assuming  all  liabilities  of  the  business  amounting  to  $2,169.94.  K. 
S.  Donovan  agrees  to  take  250  shares  of  capital  stock  at  $100  per  share  in  the 
J.  L.  Rose  Company  in  full  payment  for  the  property  transferred  as  above. 

The  J.  L  Rose  Company  incorporates  for  $60,000,  J.  L.  Rose  subscribing 
for  250  shares  for  which  he  will  pay  cash. 

Five  shares  of  stock  are  donated  to  the  following  five  persons  in  recogni- 
tion of  valuable  services  to  be  hereafter  rendered  to  the  J.  L.  Rose  Company: 

H.  R.  Vandervort — 5  shares. 

L.  DeCastro — 5  shares. 

A.  D.  Speedie — 5  shares. 

J.  H.  Gorke — 5  shares. 

W.  F.  Cunningham — 5  shares. 

This  is  a  mail  order  business  in  the  patent  medicine  line,  packages  of 

medicine  being  sent  out  C.  O.  D.    and    on    approval    without    orders    being 

received.    The  value  of  the  packages  out  is  not  accurately  known  at  the  time 

of  the  transfer  of  the  business,  but  has  been  estimated  at  $6,500. 

OPENING  ENTRIES.     ^ 

Dr.  Cr. 

Capital  Stock,  $60,000  00 

$25,000  00     K.  S.  Donovan 
25,000  00     J.  L.  Rose 
10,000  00      Treasury  Stock 

Assets  transferred  to  the  J.  L.  Rose  Company  by  K.  S.  Donovan : 

$  1,871  25  Furniture  and  Fixtures 

1,725  00  Printing  and  Stationery 

1,800  00  Typewriters 

75  75  Packages  and  Boxes 

1,150  00  Drugs  and  Medicines 

84 


12,878  00     Formulas,  Patents,  etc. 
5,000  00      C.  O.  D.  Packages  Out 
1,500  00     Mail  Order  Packages  Out 

Liabilities  assumed  by  the  J.  L.  Rose  Company : 

Bills  Payable,  $  1,136  41 

Accounts  Payable,  1,033  53 

K.  S.  Donovan,  Stock  Account,  25,000  00 
$  1,169  94     Organization  Expense 


25,000  00     Cash 

J.  L.  Rose,  Stock  Account,  25,000  00 

$  2,500  00     Organization  Expense 


H.  R.  Vandervort,  $     500  00 

L.  DeCastro,  500  00 

A.  D.  Speedie,  500  00 

J.  H.  Gorke,  500  00 

W.  F.  Cunningham,  500  00 


With  regard  to  the  estimated  C.  O.  D.  and  mail  packages  out,  open  separ- 
ate accounts  for  C  O.  D.  packages  old,  and  C.  O.  D.  packages  new,  mail  order 
packages  old,  and  mail  order  packages  new  ^The  old  accounts  will  remaiti 
open  until  all  the  packages  are  accounted  for.  If  there  is  a  deficit,  charge  the 
amount  to  Organization  Expense.  If  there  is  a  surplus,  credit  it  to  Organiza- 
tion Expense.  This  method  is  adopted  because  the  business  has  been  acquired 
for  $25,000,  regardless  of  whether  the  assets  and  liabilities  have  been  accur- 
ately listed  or  not 

The  organization  expense  can  be  gradually  written  off  as  found  con- 
venient. 


A,  B  and  C  enter  into  a  co-partnership,  the  profits  to  be  shared  equally. 

A  has  an  established  business,  consisting  of  inventory  $2,500,  cash  $500, 
His  liabilities  consist  of  a  $150  note,  on  which  there  is  one  year's  interest  due 
at  6  per  cent  and  $650  of  accounts  payable. 

B  purchases  a  one-third  interest  in  the  firm,  in  consideration  of  an  invest- 
ment of  $3,000  cash,  and  a  $200  note,  guaranteed  good,  on  which  no  interest 
has  accrued. 

C  purchases  a  one-third  interest  in  the  business  in  consideration  of  an 
investment  of  $2,400  cash  and  a  $700  note,  guaranteed  good,  on  which  six 
months'  interest  has  accrued  at  6  per  cent. 

OPENING   ENTRIES. 

It  is  evident  from  the  particulars  submitted  that  A  is  selling  one-third 
interest  in  his  well  established  business,  B  investing  $3,200  in  purchase  of  his 
one-third  interest,  and  C  investing  $3,121  in  purchase  of  his  one-third  interest. 
It  is  evident,  therefore,  that  A's  account  should  stand  on  the  books  at  the  same 
value,  so  that  he  may  be  also  entitled  to  a  one-third  share  of  the  profits,  both 
legally  and  in  equity.    The  following  entries  would,  therefore,  be  in  order : 

85 


Dr.  Cr. 

$  2,500    Merchandise  Inventory 
500    Cash 

Accounts   Payable,  $     650 

Notes   Payable,  150 

Interest  Accrued  Due,  9 

1,009    Good  Will 

A's  Investment  Account,  3,200 


3,000    Cash 
200     Notes  Receivable 

B's  Investment  Account,  3,200 


2,400    Cash 
700     Notes  Receivable 
21     Interest  Accrued  Due 

C's  Investment  Account,  3,121 

79    C's  Suspense  Account 

C's  Investment  Account,  79 


We  have  no  doubt  the  above  adjustment  would  recommend  itself  both 
to  A  and  to  C. 


A  concern,  whom  we  will  denominate  Thomas  &  Co.,  possess  a  valuable 
saleable  commodity,  and  rent  the  right  to  sell  same  to  subsidiary  companies 
organized  to  do  business  in  different  cities. 

McKenzie,  Day  &  Cunningham  organize  a  corporation  to  sell  this  com- 
modity with  a  capital  of  $100,000 — $25,000  preferred  and  $75,000  common 
stock. 

The  proprietors'  of  the  commodity  to  be  sold  receive  $15,000  per  annum 
rent  or  royalty  for  the  right  to  sell,  and  also  $50,000  of  common  stock  in  the 
new  corporation. 

McKenzie,  Day  &  Cunningham  subscribe  for  the  $25,000  preferred  stock, 
and  it  is  provided  that  they  receive  as  a  bonus  $25,000  of  common  stock,  thus 
disposing  of  the  whole  of  stock  Issued. 

We  present  this  example  to  students  of  the  Course  without  expressing  any 
opinion  as  to  the  merits  of  the  case.  It  is  quite  possible,  however,  that  any 
book-keeper  might  be  confronted  with  similar  conditions,  and  it  is  well  that  he 
should  be  informed  regarding  same. 


Dr. 

Cr. 

Capital  Stock,                                                                           $100,000 

Preferred,                                                                $25,000 

Common,                                                                    75,000 

$10,000 

McKenzie  Subscription 

10,000 

Day  Subscription 

5,000 

Cunningham  Subscription 

75,000 

Treasury  Stock 

60,000 

Franchise  Account, 

Thomas  &  Co.,  in  payment  for  right  to  sell 

commodity. 

Treasury  Stock,                                                                            $50,000 

25,000    Bonus  Account 

Stock  donated  to  McKenzie,  10,000 


86 


Stock  donated  to  Day,  10,000 

Stock  donated  to  Cunningham,  5,000 

in  consideration  of  subscription  of  preferred 
stock. 
Treasury  Stock  Account,  25,000 


(yd)       PREMIUM  ON  STOCK  SUBSCRIBED. 

In  connection  with  the  subject  of  opening  entries,  the  proper  disposition 
of  premium  on  stock  subscribed  appears  to  present  difficulties  when  the  premium 
is  paid  by  new  investors.  A  perusal  of  the  appended  articles  discussing  this 
question  will  undoubtedly  be  of  considerable  benefit  to  those  who  may  here- 
after come  in  contact  with  questions  of  this  nature. 

For  example,  A  and  B  having  been  in  partnership  and  desiring  additional 
working  capital  so  as  to  be  able  to  take  advantage  of  an  increasing  demand 
for  their  product,  resolve  to  incorporate.  Their  original  capital  was  $50,000. 
They  incorporate  for  $100,000,  transferring  the  business  to  the  new  company 
for  $60,000  ($10,000  good  will)  and  offering  remaining  shares  for  sale  at  10 
per  cent  premium. 

In  the  case  of  a  partnership,  where  A  and  B,  requiring  additional  working 
capital,  resolve  to  admit  a  third  partner  who  shall  pay  a  premium  of  10  per 
cent  for  a  certain  interest  in  the  business,  it  is  clear  that  the  premium  does  not 
concern  the  partnership  after  C  has  been  admitted  as  a  partner,  but  belongs 
to  A  and  B  in  proportion  to  their  respective  partnership  holdings.  But  in  an 
incorporated  company  where  the  books  have  been  duly  opened  showing  capital 
$100,000,  $60,000  subscribed,  $40,000  unsubscribed,  where  does  the  premium 
belong  ? 

If  it  is  credited  to  surplus,  it  is  available  for  distribution  by  way  of  divi- 
dend, the  result  being  that  the  stockholders  who  pay  the  premium  receive  a 
certain  proportion  back  in  the  way  of  dividend. 

In  the  particular  case  being  discussed,  this  eventuality  had  never  occurred 
to  the  vendors  of  the  partnership  business,  and  they  were  very  indignant  at 
the  bare  supposition  that  the  premium  they  had  exacted  from  the  purchasers 
of  the  stock  should  be  returned  to  those  purchasers  in  any  shape,  manner  or 
form.  The  new  investors  in  the  business  on  their  part  averred  that  the  only 
reason  they  consented  to  pay  the  premium  was  the  knowledge  that  part  of  it 
would  return  to  them  by  way  of  dividend,  and  that  this  was  the  universal 
custom  in  such  cases. 

A  public  accountant  was  called  in  to  arbitrate,  and  he  suggested  the  follow- 
ing compromise: 

Credit  the  premium  to  a  premmm  account  and  cdlow  it  to  stand  as  a 
reserve  account,  so  that  not  only  the  additional  capital  subscribed  but  also 
the  premium  thereon  shall  remain  in  the  business  as  working  capital. 


"In  the  case  referred  to  the  presumption  is  that  the  business  has  been 

87 


brought  to  a  stage  in  which  the  shares  issued  for  the  purchase  of  the  business 
are  worth  ten  per  cent  above  par,  because  of  (i)  a  surplus  on  hand,  (2)  a 
conservative  valuation  of  assets,  or  (3)  an  earning  power  of  more  than  par. 

The  legitimate  object  of  asking  a  premium  for  the  additional  $40,000  stock 
therefore  would  be  to  place  it  on  the  same  level  with  the  $60,000  first  issued, 
on  the  same  principle  that  a  person  taking  out  shares  in  a  building  and  loan 
association  six  months  after  the  series  has  been  opened  is  asked  to  pay  a 
premium  in  order  to  place  his  shares  in  the  same  position  as  those  issued  at 
the  opening  of  the  series  and  which  have  been  earning  profits  for  six  months. 
In  this  case  the  premiiim  would  properly  be  credited  to  surplus  account. 

The  suggestion  of  the  accountant  alluded  to  would  hardly  be  considered 
a  compromise  by  the  vendors  if  they  understood  it  thoroughly,  for  in  case  of 
subsequent  liquidation  of  the  business — assuming  that  the  assets  would  fully 
meet  the  liabilities — would  not  the  amount  in  the  premium  account  be  closed 
into  and  divided  with  the  surplus,  or  divided  among  the  stockholders  on  the 
same  basis  as  the  surplus? 

If,  however,  the  vendors  intended  that  the  premium  paid  for  the  $40,000 
additional  stock  should  eventually  go  to  them  individually  as  a  bonus  for  per- 
mitting the  other  parties  to  purchase  shares  in  the  business,  a  simple  way  would 
be  to  credit  the  premium  to  the  individual  accounts  of  the  vendors,  with  the 
understanding,  in  the  form  of  a  written  agreement,  if  necessary,  that  it  would 
not  be  withdrawn  from  the  concern  unless  they  disposed  of  their  interest  in 
the  business  or  it  was  wound  up.  This  method  would  show  the  item  in  its 
proper  lig^ht  as  a  liability." 


*'A  &  B  as  partners  in  business  have  $50,000  invested — want  to  expand— 
agree  to  incorporate  at  $100,000  and  turn  over  their  business  for  $60,000  stock 
— and  evidently  do  it.  They  agree  to  sell  balance  of  stock  at  a  ''premium"  of 
10  per  cent — and  the  fact  of  the  disagreement  with  other  stockholders  seems  to 
indicate  that  they  also  did  that.  I  can't  see  any  chance  for  "argument"  or  any 
reason  for  dissatisfaction.  In  the  first  place,  A  &  B  had  a  right  to  incorporate 
at  any  old  figure  and  sell  their  own  business  as  partners  to  themselves  as  a 
corporation  at  any  other  old  figure.  It  would  seem,  however,  that  their  figures 
were  not  unreasonable,  and  that  the  business  warranted  it,  or  purchasers  could 
not  have  been  found  to  buy  the  minority  stock  at  $1.10  when  they  (the  said 
stock  purchasers)  were  aware  that  $60,000  had  been  issued  at  16  2-3  per  cent 
discount — or  that  the  original  partners  had  not  only  purchased  their  stock  at 
*'par"  but  had  received  an  additional  bonus  of  $10,000.  All  of  this  was  a 
matter  of  record,  and  therefore  purchasers  of  stock  at  $1.10  had  no  right  to 
go  behind  the  returns,  as  evidently  everything  was  satisfactory  up  to  this  point. 
No  secret  seems  to  have  been  made  of  the  $10,000  price  placed  on  "good  will," 
and  any  legitimate  business  in  healthy  condition  should  stand  a  bonus  of  this 

88 


amount.  Up  to  this  point  there  should  be  no  controversy.  A  &  B  were  in  full 
control  and  should  have  shown  Capital  Stock  Cr.  $60,000,  Assets  in  proper 
items  aggregating  Dr.  $50,000,  and  Good  Will  Dr.  $10,000. 

Good  Will  is  as  legitimate  as  any  other  asset  of  actual  value,  and  is  a  much 
better  way  of  handling  honest  incorporations  than  the  usual  method  of  arbi- 
trarily increasing  the  value  of  all  assets,  including  ''Blue  Sky"  and  "Water 
Ways." 

Now  the  new  stockholders  purchase  stock  (admittedly  Treasury  Stock)  at 
$1.10.  If  it  was  Treasury  Stock  the  proceeds  belonged  to  the  company.  If 
$40,000  was  sold  at  $1.10,  Capital  Stock  should  be  credited  with  $40,000,  Cash 
debited  with  $44,000  and  "Premium  on  Stock  Marketed"  or  any  such  title 
clearly  indicating  the  facts  should  be  credited  with  $4,000,  and  the  whole 
$44,000  belongs  to  the  company,  which  now  shows  assets  $94,000,  good  will 
$10,000,  and  every  holder  of  stock  owns  bis  proportionate  amount  of  all  the 
assets  regardless  of  whether  they  are  to  be  held  by  the  company  or  paid  out  in 
dividends. 

I  can't  see  anything  particularly  clever  about  the  suggestions  of  the  public 
accountant  called  in  to  arbitrate.  He  simply  did  what  any  accountant  should 
have  done.  However,  I  believe  that  he  was  absolutely  right  and  that  any 
complaint  from  A  &  B  was  the  result  either  of  ignorance  or  a  natural  desire 
of  many  people  to  always  want  more  after  they  realize  that  they  are  getting 
all  they  asked.'' 

(//)       MANIFOLD  ORDER  BLANKS. 

Our  illustration  shows  how  this  system  is  used  in  large  businesses,  each 
department  in  any  way  connected  with  the  order  receiving  its  separate  copy. 

The  number  to  the  left  is  the  regular  serial  number  of  the  order,  printed 
when  the  blanks  are  printed. 

The  number  on  the  right  is  the  office  number,  and  is  only  a  temporary 
number,  by  which  customer's  invoice  and  office  copy  of  invoice  are  filed  pending 
receipt  of  notice  from  the  shipj)ing  department  that  the  goods  have  been 
shipped. 

The  factory  number  is  placed  on  the  shop  order,  and  is  the  number  by 
which  all  factory  records  are  filed. 

The  seven  order  blanks  are  filled  out  on  the  typewriter  at  one  operation. 

The  first  copy  is  the  invoice  to  the  customer. 

The  second  copy  is  the  office  copy. 

The  third  copy  is  used  for  factory  order. 

The  fourth  copy  is  used  by  the  statistical  department,  where  recapitulations 
arc  made  of  volume  of  business,  etc. 

The  fifth  copy  is  sent  to  the  sales  department  for  use  in  making  up  lists 
of  salesmen's  sales,  after  which  it  is  filed  as  a  customers'  record. 

The  sixth  copy  goes  to  the  freight  department. 

89 


Thjs  N.  K.  Pairbank  Company 


«M»  earand  t  (ttpsr  Ca 

Allanllo  Cliy  II  T 


fnm    .Chloic* 


latt  OcptrtiiKM. 
fm^txtrntmnm  ST.  LOUIS  o>  NEW  ORLCAMS 

The  N.  K.  Fairbank  company 


.   7S27  ■ 


DnriDd  •  taspar   Co 

iklanlto   CUjr  »  » 


Jur.a   ?0    1)04 


8ALCS  Ot^AVrMtNT-co"  cr  o*k* 

'*'*  The  N,  K.  PAiRBANk  Company 

SMfM   DnraDd  A  laspar   Ce 

ilUntlo   City   t  T 

ppw>      Chleaeo 


7527 


lunt    20    1994 


10    1904, 


?  tttf>«  l»r«i  C*»i«»M.     >790 


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The  Ni  K-  Fairbank  Company 


•MB     0«r*ai  t  It4ipir  Co 

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ONOCII 


The  jr.  K-  Fairbank  Company 


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6m    Jtso  10  190'"* 


5  TUreat  I.»r4  eaBiasX 

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The  N.  K.  Fairbank  Company 


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Jan*   10   190^^ 


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100  C/S5  Lb  falla     *  «000  #  j 

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LOOSE-LEAF  FORMS  USED  BY  THE  N,  K.  FAIRBANK  CO. 
90 


The  last  copy  is  furnished  to  the  salesman  who  took  the  order  for  his 
information  and  use. 

(y8)       MANIFOLD  DRAFTS. 

The  appended  illustration  shows  a  system  in  use  which  has  proved  very 
satisfactory.  The  system  consists  of  a  form  of  draft,  four  copies  being  made 
at  one  writing. 


n- 


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crano  rapids  brass  company. 


A  Stub  is  attached  to  the  original  form  and  serves  as  a  statement  of  the 
account  for  which  the  draft  is  drawn. 

The  duplicate  is  forwarded  to  the  cashier  of  the  bank  where  the  draft 
is  deposited  for  collection. 

The  triplicate  copy  is  used  as  a  letter  of  notification  to  customer  that  draft 
has  been  drawn  and  deposited  for  collection. 

The  fourth  copy  is  retained  in  the  office  for  reference. 


91 


CHAPTER  X 


Closing  Entries;  Reverse  Posting  System,  Perpetual  Balances. 

CLOSING  ENTRIES. 

(7p,)  The  proper  method  of  making  closing  entries  is  of  the  utmost 
importance  to  the  progressive  book-keeper,  and  we  therefore  propose  in 
this  lesson  to  give  numerous  examples — not  so  much  of  the  closing  records 
themselves,  but  of  their  effect  in  preparing  financial  statements  w^hich  are 
required  in  every  up-to-date  business. 

MERCHANDISE  ACCOUNT. 

(80.)  Where  a  Merchandise  account  is  carried,  it  must  be  closed  by- 
crediting  the  amount  of  the  current  inventory  and  inserting  the  balance  of 
account  on  the  debit  side.  Credit  this  balance  to  Profit  &  Loss  account 
and  bring  down  the  inventory  as  the  debit  balance  of  the  Merchandise 
account  for  the  current  year. 

Thus :  • 

Total   debits    $2,856  95      Total   Credits    $3.246  52 

Bal.  to  Profit  and  Loss 1,489  57      Inventory  1,100  00 

$4,346  52  $4,346  52 

Inventory  brought  down   $1,100  00 

Where  separate  Sales,  Purchases  and  Inventory  accounts  are  carried, 
these  are  closed  primarily  into  a  Trading  account,  as  shown  in  Th.  M.  and 
illustrated  herein. 

The  balances  of  all  revenue  accounts  are  closed  into  Profit  &  Loss 
account,  either  to  the  debit  or  to  the  credit,  as  the  case  may  be. 

It  generally  happens  that  in  accounts  like  Expense,  Rent,  Insurance, 
Taxes,  etc.,  there  is  an  unexpired  or  unearned  balance.  These  balances 
should  be  brought  down  as  inventories,  being  credited  to  Profit  &  Loss 
account  and  included  in  the  balance  sheet  as  assets  in  the  one  case,  or  being 
debited  to  Profit  &  Loss  account  and  included  in  the  balance  sheet  as  liabili- 
ties in  the  other  case. 

TRIAL  BALANCE  NO.  81, 

Dr.  Cr. 

Capital   X    $8,000  00 

Capital   Y    7,000  00 

Capital  Z   5,000  00 

Land  and  Buildings  $  9,000  00 

92 


Plant,  Machinery  and  Tools  4,000  00 

Tools   1,500  00 

Inventory  March  1st  4,500  00 

Purchase  Account,  Material  11,000  00 

Wages    6,000  00 

Freight  and  Express  800  00 

Coal  and  Coke   1,200  00 

Salaries,  Manufacturing   1,500  00 

Salaries,  Clerks  and  Traveling 500  00 

Water  Rates  and  Taxes  450  00 

Discounts  and  Allowances   600  00 

Rents    (Sub-letting)    150  00 

Fifth  National  Bank  2,000  00 

Cash  on  Hand   40  00 

Accounts    Payable    1,500  00 

Accounts   Receivable    5,000  00 

Expense,  Repairs  and  Replacements   800  00 

Plant  Extension  Act  3,000  00 

Bad  Debts   (Uncollectible)    30  00 

Sales  Account  30,500  00 

Sales,  Returns  and  Allowances  230  00 


$52,150  00         $52,150  00 

In  this  case  it  is  required  to  strike  off  from  Plant  and  Machinery  a 

Depreciation  of  5%  and  15%  from  Tools;  interest  at  4%  to  be  charged  on 

Partners'  capital.     The  partners  share  profits  and  losses  in  proportion  to 

capital  invested.     The  Inventory  June  30th  was  $6,000.00. 

TRADING   ACCOUNT. 

Inventory,  March  1st   $  4,500  00 

Purchases    $11,000  00 

Freight  and  Express 800  00    $11,800  00    $16,300  00 


Wages    6,000  00 

Salaries,    Mfg 1,500  00 

Coal  and  Coke   1,200  00 

Sales    $30,500  00 

Less  Returns  and  Allowances   230  00  80.270  00 


Inventory  June  30    6,000  00 

Gross  Profit  Carried  Down  11,270  00 


$36,270  00      $36,270  00 

PROFIT  AND  LOSS  ACCOUNT. 

Gross  Profit  Brought  Down $11,270  00 

Salaries,  Clerks  and  Traveling $  500  00 

Water  Rates  and  Taxes   450  00 

Discounts  and  Allowances  600  00 

Rents  Received  from  Sub-tenants  150  00 

Expenses,  Repairs  and  Replacements  800  00 

Bad  Debts   (Uncollectible)    30  00 

Interest  on  X,  Y  and  Z  Capital  Accounts,  1^^%  on  $20,000 266  66 

Net   Profit    8,773  34 


$11,420  00      $11,420  00 

SURPLUS    ACCOUNT. 

Net  Profit  Carried  Down  $  8,773  34 

5%  Depreciation  on  Plant,  Machinery  and  Tools $     200  00 

15%  Depreciation  on  Tools  225  00 

Balance  to  Credit  of  Partners'  Accounts 8,348  34 


$  8,773  34      $  8,773  34 
93 


EXHIBIT  OF  partners'  ACCOUNTS  AND  BALANCE  SHEET. 

"X"  Capital  Accouni. 

Capital,  March  1st   $  8,000  00 

Interest  from  March  1st  to  June  30th  106  67 

By  Surplus  411925%  of  $8,106.67 3,339  34 

$11,446  01 
"Y"  Capital  Account. 

Capital,  March  1st   $  7,000  00 

Interest  from  March  1st  to  June  30th 93  33 

By  Surplus  411925%  of  $7,093.33  ; 2,921  92 

$10,015  25 
"Z"  Capital  Accounts. 

Capital,  March  1st   $  5,000  00 

Interest  from  March  1st  to  June  30th m  QQ 

By  Surplus  411925%  of  $5,066.66 2,087  08 

$  7,153  74 

BALANCE  SHEET,  JUNE  30tH. 

Capital  Account  "X"  $11,466  01 

Capital  Account  "Y"   10,015  25 

Capital   Account  "Z"    7,153  74 

Accounts   Payable    1,500  00 

Land  and   Buildings    $  9,000  00 

Plant,   Machinery  and   Tools    3,800  00 

Plant  Extension  Account  3,000  00 

Tools 1,275  00 

Accounts  Receivable 5,000  00 

Cash  in  Bank  and  on  Hand 2,040  00 

Inventory  as  on  June  30th 6,000  00 

$30,115  00      $30,115  00 

TURNOVER. 

Inventory  March  1st  $  4,500  00 

Purchases    11,000  00 

Freight  and  Express  800  00 

Wages  6,000  00 

Salaries,    Mfg 1.500  00 

Coal  and  Coke  1,200  00 

$25,000  00 
Less  Inventory,  June  30th  6,000  00 

Turnover    $19,000  00 

Sold    for    30,270  00 

Gross   Profit   , .$11,270  00 

PERCENTAGES  ON  TURNOVER. 

Gross   Profit   ($11,270  00)  59.1% 

Net  Profit   (     8,773  34)  46.2% 

Manufacturing  Expense (     8,700  00)  45.8% 

General   Expense    (     2,496  %)  13. 1% 

TRIAL    BALANCE    NO.    2. 

Dr.  Cr. 

John  J.  Hodge  $  2,750  00 

Capital  Stock  Subscribed  '       9,389  50 

Capital  in  Arrears  298  00 

Land   and   Buildings 15,000  00 

Swift,  Dodds  &  Co 3,900  00 

Expense,  General 155  28 

Printing  and  Stationery 13  07 

Petty    Cash    35 

Telegrams  and  Postage :..... 55  03 

94 


Salaries    361  6o 

Rent,   Office    112  00 

Expense,    Office    5  06 

Machinery   400  00 

Interest    250  00 

Interest    7  10 

Accounts   Payable    37  00 

W.  C.  Sheffield   79  20 

Transfer  Fee  26 

Cash 49  07 

$16,405  96      $16,405  ^Q 

The  amount  of  authorized  capital  is  $15,000.00,   consisting  of  1,500 

$10  shares,  800  of  which  have  been  issued  to  the  vendor  in  payment  for  the 

property.     Of  the  700  shares  available  for  subscription   555   7/10  shares 

have  been  sold,  on  which  a  first  installment  of  $2.50  has  been  received. 

We  show  two  ways  of  arranging  the  balance  sheet  in  this  case,  the 
second  form  being  the  one  most  generally  used. 

ORGANIZATION    EXPENSES. 

General  Expense    $155  28 

Printing  and  Stationery   13  07 

Telegrams  and  Postage 5  03 

Salaries   361  00 

Office  Rent 112  00 

Office   Expense    5  06 

Interest    '. 7  10 

$658  54 
Less  Transfer  Fee    «  26 

Net  Organization  Expense  $658  28 

BALANCE   SHEET. 

Assets.        Liabilities. 

Capital  Stock  $15,000  00 

Less  :  144  3/10  shares  Treas.  Stock 1,443  00 

Subscribed  Capital    $13,557  00 

Less  :  Capital  in  arrears $   298  00 

Unpaid   Subscriptions    4,167  50         $  4,465  50 

Liability  to  Stockholders $  9,091  50  $  9,091  50 

John  J.  Hodge   2,750  00 

Swift,  Dodds  &  Co 3,900  00 

W.  C.   Sheffield    79  20 

Loan  Account   250  00 

Accounts   Payable    37  00 

Land  and  Buildings   $15,000  00 

Machinery   400  00 

Cash   49  42 

Organization  Expense    : . .       658  28 

$16,107  70      $16,107  70 
This  item  is  a  legitimate  Asset,  and  the  custom  is  to  write  off  the 
Asset  gradually,  about  20,%  or  25%  each  year,  charging  Surplus  account 
and  crediting  Organization  Expense. 


95 


BALANCE  SHEET. 

Assets. 

Capital    Stock 

Subscribers'   Accounts    $  4,167  50 

Capital  in  Arrears    298  00 

Treasury    Stock    1,443  00 

John   J.    Hodge 

Swift,  Dodds  &  Co 

W.   C.    Sheffield 

Loan  Account   

Accounts    Payable    

Land  and  Buildings   *. 15,000  00 

Machinery   400  00 

Cash   49  42 

Organization  Expense    658  28 

$22,016  20 

TRIAL  BALANCE  NO.  3. 

Dr. 

Land  and  Buildings .$  5,000  00 

Machinery   anji    Plant 8,800  00 

Patterns   1 3,300  00 

Inventory   9,000  00 

Office  Fixtures  and  Furniture 400  00 

Tools   2,500  00 

Patents   1,000  00 

Accounts  Receivable  10,500  00 

Cash  100  00 

Profit  and  Loss  Account,  January  1st,  1903 4,270  00 

Capital   Stock    

Debenture   Stock    

Accounts   Payable    

Bank    (Over   Drafts) 

Sales  Account    

Purchase  Account    19,000  00 

Wages,  Manufacturing   11,800  00 

Erecting,  Fitting  and  Freight 2,400  00 

Expense,  Repairs  and  Maintenance 800  00 

Expense,  Coal,  Coke,  Water,  Gas 450  00 

Expense,  Printing,  Advertising,  Stationery 250  00 

Expense,  Rent,  Taxes  and  Insurance 260  00 

Expense,  Traveling  and  Commission 1,400  00 

Expense,  General  450  00 

Discounts  and  Bad  Debts,  Reserve 

Directors*  Fees   100  00 

Interest  on  Debentures  900  00 

Interest 70  00 

Law,  Costs  and  Auditors'  Fees 1,150  00 

Royalties  200  00 

$83,100  00 
The  following  depreciation  must  be  provided  for: 

From  Land  and  Buildings 3% 

Machinery  and   Plant 5% 

Patterns  ^. 10% 

Patents  ". 10% 

Office  Furniture   5% 

Also  establish  a  reserve  of  6,%  on  accounts  receivable  as  a  provision 

against  discounts  and  bad  debts. 

Inventory,  Jan.  1,  1904— Merchandise $9,500  00 

Tools 2,300  00 


96 


TRADING  ACCOUNT. 

Inventory,  Jan.  1st,  1903 $  9,000  00 

Purchases    $19,000  00 

Erecting,  Fitting  and  Freight 2,400  00 

21,400  00 

30,400  00 

Wages,   Manufacturing   11,800  00 

Coal,  Coke,  Water,  Gas 450  00 

Royalties   200  00 

Sales    $40,000  00 

Inventory  January  1st,  1904 9,500  00 

Gross    Profit    6,650  00 


$49,500  00      $49,500  00 

PROFIT  AND  LOSS  ACCOUNT. 

Gross  Profit  brought  down $6,650  00 

Repairs  and  Maintenance  $   800  00 

Printing,  Advertising  and  Stationery 250  00 

Rent,  Taxes  and  Insurance 260  00 

Traveling  and  Commission 1,400  00 

General  Expense   450  00 

Net  Profit  carried  down 3,490  00 


$6,650  00        $6,650  00 

SUBSIDIARY   PROFIT   AND   LOSS   ACCOUNT. 

Net  Profit  brought  down $3,490  00 

Directors'    Fees    $     100  00 

Interest  on  Debentures   900  00 

Interest    70  00 

Law  Costs  and  Auditors'  Fees 150  00 

Surplus   for   1903. .'. 2,270  00 


$3,490  00        $3,490  00 

Surplus  brought  down $2,270  00 

Depreciation  on  Tools $  200  00 

Depreciation  on  Land  and  Buildings 150  00 

Depreciation  on  Machinery  and  Plant 440  00 

Depreciation  on   Patterns 330  00 

Depreciation  on  Office  Furniture  and  Fixtures 20  00 

Depreciation  on  Patents 100  00 

Reserve  for  Discounts  and  Bad  Debts,  6%  of  $10,500 630  00 

Net  surplus  for  1903 ^ 400  00 


$2,270  00 

BALANCE   SHEET. 

Capital  Stock  

Debenture   Stock    

Accounts   Payable    

Reserve  for  Discounts  and  Bad  Debts 

Reserve  for  Depreciation  on  Tools 

Reserve  for  Depreciation  on  Land  and  Buildings 

Reserve  for  Depreciation  on  Machinery  and  Plant 

Reserve  for  Depreciation  on  Patterns 

Reserve  for  Depreciation  on  Office  Furniture  and  Fixtures 

Reserve  for  Depreciation  on  Patents 

Bank  Overdraft    

Accounts    Receivable    $10,500  00 

Cash  on  Hand   100  00 

Land  and  Buildings  Inventory 5,000  00 

Machinery  and   Plant   Inventory 8,800  00 

Patterns   Inventory   3,300  00 

Office  Furniture  and  Fixtures,  Inventory 400  00 

Tools  Inventory   , 2,500  00 

Patents  Inventory , 1,000  00 

97 


$2,270  00 

$20  000  00 

15,000  00 

7,000  00 

830  00 

200  00 

150  00 

440  00 

330  00 

20  00 

100  00 

900  00 

Inventory  December  31,  1904 9,500  00 

Assets    $41,100  00  1 

Deficiency  January  1,  1903 $4,270  00 

Less  Net  Surplus  for  1903 400  00 

3,870  00 

$44,970  00      $44,970  00 

TRIAL  BALANCE  NO.  4. 

Dr.  Cr. 

Accounts   Payable   $7,500  00 

Bank  Overdraft   3,000  00 

Mortgage  Debt  5,000  00 

Capital,  J.  W.  Davis 18,000  00 

Capital,  W.  F.  Bingham 12,000  00 

Sales  Act  20,500  00 

Cash  Sales  4,100  00 

Accounts  Receivable   $11,500  00 

Cash  on  Hand  50  00 

Land  10,000  00 

Plant    and    Machinery 2,500  00 

Tools,   Horses   and   Wagons 1,550  00 

Inventory,  March  1st,  1903 15,000  00 

Purchases    18,500  00 

Freight  and  Cartage 1,500  00 

Wages,  Labor   3,200  00 

Salaries  and  Wages  Office 800  00 

Rates  and  Insurance  1,550  00 

Repairs   Expense    300  00 

Trade  Expenses  1,200  00 

Discounts  and  Allowances 900  00 

Bad  Debts   200  00 

Interest  and  Discounts 250  00 

Interest  on  Mortgage  200  00 

Salaries    900  00 

$70,100  00  $70,100  00 
In  this  case  it  is  required  to  provide  a  reserve  of  $150  against  bad 
debts,  and  3J^%  on  accounts  receivable  for  anticipated  cash  accounts. 
Add  $205  to  trade  expenses  for  expense  bills  incurred,  but  not  entered  on 
the  books.  The  net  profit  to  be  divided  between  the  partners  in  proportion 
to  investment. 

Inventory,  March  1,  1904 $22,600. 

TRADING  ACCOUNT. 

Inventory,  March  1,  1903 $15,000  00 

Purchases  $18,500  00 

Freight  and  Cartage 1,500  00 

20,000  00 

$35,000  00 

Wages  and  Labor 3,200  00 

Sales  Account   20,500  00 

Cash  Sales 4,100  00 

$24,600  00 

Inventory  March  1st,  1904 22,600  00 

Gross  Profit  carried  down $9,000  00 

$47,200  00      $47,200  00 

PROFIT  AND  LOSS  ACCOUNT. 

Gross  Profit  brought  down $9,000  00 

Salaries  and  Wages   Office $   800  00 

Rates  and  Insurance  1,550  00 

Repairs  Expense    300  00 

98 


Trade  Expenses   1,405  00 

Discounts  and  Allowances 900  00 

Bad  Debts 200  00 

Interest  and  Discounts   250  00 

Net  profit  carried  down 3,595  00 

$9,000  00        $9,000  00 

SURPLUS    ACCOUNT. 

Net  profit  brought  down $3,595  00 

Interest  on   Mortgage    $   200  00 

Salaries    900  00 

Reserve  for  Bad  and  Doubtful  Accounts 150  00 

Reserve  for  Customers'  Cash  Discounts 402  50 

Surplus    1,942  50 

$3,595  00       $3,595  00 

BALANCE  SHEET. 

Liabilities. 
Capital  Accounts : 

J.  W.  Davis  ...$18,000  00 

%  of  $1,942  50  Net  Profit 1,165  50 

$19,165  50 

W.  T.  Bingham  $12,000  00 

ys  of  $1,942  50  Net  Profit 777  00 

12,777  00 

Accounts   Payable    7,500  00 

Bank  Overdraft   3,000  00 

Sundry  Accounts: 

Reserve  to  Provide  for  Trade  Expenses $   205  00 

Reserve  for  Bad  and  Doubtful  Accounts 150  00 

Reserve  for  Customers'  Cash  Discounts 402  50 

: $  757  50 

Assets. 

Lands .$10,000  00 

Less  Mortgage  5,000  00 

$5,000  00 

Plant  and  Machinery  2,500  00 

Tools,  Horses  and  Wagons 1,550  00 

Accounts  Receivable  11,500  00 

Cash  on  Hand   50  00 

Inventory  March  1st,  1904 22,600  00 

$43,200  00      $43,200  00 

TURNOVER. 

Inventory  March  1,  1903 $15,000  00 

Purchases    $18,500  00 

Freight  and  Cartage 1,500  00      20,000  00 

$35,000  00 
Wages    and    Labor 3,200  00 

$38,200  00 

Less  Inventory  March  1,  1904 22,600  00 

Turnover 15,600  00 

Sold    for    24,600  00 

Gross  Profit $9,000  00 

PERCENTAGES    ON    TURNOVER. 

Gross    Profit    $9,000  00  57.68% 

Net  Profit  3,595  00  23.04% 

Manufacturing   Expense    3,200  00  20.51% 

Selling  Expense   6,305  00  40.41% 

General   Expense    1,652  50  10.59% 

Surplus    1,942  50  12.20% 

99 


THE  SLIPj  OR  REVERSE  POSTING  SYSTEM. 

(82)  In  using  the  Slip  System,  the  sHp  should  be  placed  on  the  right 
hand  side  of  the  ledger.  The  amount  should  be  first  posted  from  the  book 
of  original  entry  to  the  ledger,  and  from  the  ledger  to  the  slip.  By  adopt- 
ing this  method  it  certainly  seems  impossible  to  enter  an  amount  on  the 
slip  without  having  first  posted  it  to  the  ledger,  as  the  entry  on  the  slip 
must  always  be  copied  from  the  ledger.  It  may  be  that  the  book-keeper  is 
called  away  while  posting,  but  even  then,  on  returning  to  his  work  he 
should  look  to  the  ledger  for  the  amount  to  be  entered  on  the  slip. 

There  is  really  no  way  of  preventing  a  book-keeper  from  making  a 
mistake  of  this  kind,  and  where  such  errors  are  made  no  checking  system 
could  possibly  be  efifective.  Many  book-keepers  prove  their  ledgers  each 
day  against  the  slip.  A  slip  of  paper  is  inserted  in  the  ledger  where  post- 
ings are  made,  and  a  recapitulation  of  the  debit  and  credit  postings  is 
obtained  by  an  adding  machine.  Where  this  can  be  done  a  mistake  of  the 
kind  referred  to  would  be  caught  the  same  day;  but  in  large  businesses, 
where  the  posting  is  very  heavy,  this  plan  would  occupy  too  much  time. 
At  the  end  of  the  month,  however,  the  total  debits  and  credits  should  be 
drawn  off  (provided  a  discrepancy  is  found)  and  agreed  with  the  total 
debits  and  credits  as  shown  by  the  slips.    See  illustration  of  Balance  Slip. 


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Another  objection  made  is  that  where  postings  are  made  from  numer- 
ous books  (say  several  sales  books  for  example)  the  use  of  separate  slips 
for  each  book  would  be  objectionable. 

The  reason  why  separate  slips  are  used  for  separate  books  is  to  prevent 
the  possibility  of  entering  amounts  on  the  slips  in  the  wrong  columns. 
This  is  an  error  that  might  easily  occur,  and  when  made  makes  the  proof 
absolutely  ineffective.  We  are  unable  to  see  anything  objectionable  in  the 
use  of  separate  slips  for  each  book  from  which  postings  are  made,  no  matter 
how  numerous  those  books  may  be,  nor  do  we  see  how  the  use  of  separate 


100 


slips  could  in  any  way  inconvenience  the  book-keeper  who  checks  his  work 
by  this  method. 

PERPETUAL   BALANCES. 

(Sj)  A  perpetual  balance  can  only  be  obtained  by  means  of  a  per- 
petual inventory,  and  this  must  either  be  approximate,  or  what  is  called 
a  "book"  inventory,  i.  e.,  a  stock  record  is  kept  on  the  card  system,  on 
which  is  debited  all  material  or  goods  received,  and  on  which  is  credited 
all  material  used  or  goods  sold. 

This  book  inventory,  like  a  cash  account,  only  shows  what  the  inven- 
tory on  hand  should  be  if  all  entries  on  the  stock  record  are  correct.  It  does 
not  necessarily  follow  that  the  cash  called  for  by  the  balance  shown  in  the 
cash  book  is  on  hand,  or  that  the  merchandise  called  for  by  the  book  inven- 
tory is  actually  in  our  possession.  In  order  to  ascertain  if  we  have  it  an 
actual  inventory  must  be  taken. 

Book  inventories  are  extremely  useful,  however,  because  they  provide 
an  effectual  check  on  the  disposition  of  material  or  merchandise  by  showing 
how  much  should  be  accounted  for  when  inventory  is  taken. 


Stock  Record. 

No. or  Sfze 

Article                                                                                                                          1 

Section 

Cost 

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One  sheet  should  be  used  for  each  article  or  class  of  goods  and 
should  be  ruled  to  show  the  quantities  received,  quantities  disbursed  and 
balance  in  stock.  While  in  some  cases  there  may  be  reasons  why  the 
stock-keeper  should  not  know  the  cost  of  goods,  it  is  usually  advisable  to 
include  prices  in  these  records. 

Since  certain  items  are  more  active  than  others,  provision  must  be 
made  for  unlimited  expansion.  For  such  records,  cards  or  loose  leaf 
books  are  therefore  the  most  satisfactory. 

EXERCISE. 

Mr.  F.  Robertson  purchases  for  $315  a  small  stock  of  hardware  sup- 
plies, etc. ;  he  also  invests  $685  cash  for  the  purpose  of  carrying  on  the 

business. 


101 


A  schedule  of  transactions  for  the  month  of  January  is  attached,  in- 
cluding Sales  Charges ;  Purchases ;  Cash  Receipts  and  Disbursements ;  and 
Journal  Entries. 

Required — Completed  sales  and  purchase  entries ;  open  ledger  accounts 
in  which  to  record  sales,  purchases,  and  general  ledger  items.  Submit 
Trial  Balance;  Balance  Sheet;  Trading  account;  Profit  and  Loss  account; 
showing  present  worth  of  F.  Robertson. 

TRANSACTIONS  FOR  MONTH  OF  JANUARY. 

SALES  CHARGES. 

Tonawanda  Lumber  &  Saw  Mill  Co., 

To  2  Gal.  Paint  at  $1.40. 
Ironton  Land  Co., 

To  15  lbs.  20d  Nails  at  3c $0  45 

20  lbs.  8d  Nails  at  3c 60 

Bolton  Carbon  Mfg.  Co., 

To  6  sheets  20x28  Tin  at  15c. 
James  Rhoney, 

To  10  lbs.  8d  Nails  at  3c 30 

5  lbs.  20d  Nails  at  3c 15 

5  lbs.  lOd  Nails  at  3c 15 

Pioneer  Planing  Mill, 

To  12  >4xl2  Bolts  at  Ic 12 

2  lb.  Vs  Iron  Washers  at  5c 10 

1  8"  Rd.  File 15 

1  12"  Rd.  File 25 

W.  M.  Merrill, 

To  54  gal.  Ker.  Oil  at  7c. 
Bolton  Carbon  Mfg.  Co., 

To  34  ft.  12"  Belt  at  $1.55,  $52.70. 
50%  off. 

To  1  Nail  Puller 2  00 

A.  H.  Miller, 

To  50  5/16x3  Bolts 77 

505/16x4  Bolts  82 

Geo.  Royce, 

To  1  85-18  F.  &  W.  Range 25  00 

James  Patton, 

To  39  ft.  3"  Conductor  at  8c 3  12 

6  ft.  2"  Conductor  at  7c 42 

2  3"   Elbows   at  20c 40 

4  Lts.  26x34  DT  Glass $13  76 

4  Lts.  36x52  DT  Glass 35  00 

48  76 

75%  off. 
Tonawanda  Lumber  &  Saw  Mill  Co., 

To  2  Gal.  Paint  at  $1.40 2  80 

J^  Gal.  Turpentine  at  60c 30 

Bolton  Carbon  Mfg.  Co., 

To  6  lbs.  Solder  at  20c 1  20 

510  lbs.  Sheet  Iron  at  S^c 17  85 

Hewett  Furniture  Co., 

To  1  H  Globe  Valve 60 

1  1  Globe  Valve....'. 75 

2  VA  Globe  Valve  at  $1.25 2  50 

A.  H.  Miller. 

To  200  ^x3  Bolts  $  4  60 

500  ^x4i/^  Bolts  12  50 

500    Vsxey2    Bolts 15  00 

65%  off.  S2  10 

102 


i 


rnest  Klemer, 

To  2655  lbs.  Sash  Weights 31  86 

21/3  Doz.  Wrt.  Butts 152 

Bolton  Carbon  Mfg.  Co., 

To  36   ft.  8"   Belt $36  72 

169  ft.  6"  Belt 128  44 

165  16 

50  and  10  off. 

2  lbs.  Empire  Packing  at  60c. 

2  24x6x27/16  SW  Pulleys $14  60 

2  24x14x27/16  SW  Pulleys 30  20 

1  24x10x3^  SW  Pulley 10  45 

I  12x6x27/16  SW  Pulley  3  55 

40%  off.  58  80 

Hewett  Furniture  Co., 

To  418  lbs.  Galv.  Iron 22  99 

87  Hours  Time  26  10 

32  Hours  Time  4  80 

II  lbs.  Solder 1  65 

Pioneer  Planing  Mill, 

To  6  Doz.  8"  Mill  Files 6  00 

100  lbs.  40d  Nails 2  25 

A.  W.  Story, 

To  Hot  Water  Heater  and  installing  as  per  contract 425  00 

Ahr  Broy., 

To  3  Gal.  No.  1  Coach  Varnish  at  $2 6  00 

1  Gal.  Wagon  Varnish 1  75 

PURCHASES. 

Bought  of  Geo.  C.  Harris  &  Co., 

4  Lts  26x34  DT  Glass $13  76 

4  Lts.  36x52  DT  Glass 35  00 

$  48  76 

Less  75-5  and  2^- 
Bought  of  Kellogg  &  McDougal, 

1  Bbl.  Mach.  Oil,  50  Gal,  at  19c. 
Bought  of  Fairbanks  Co., 

2  24x6x2  7/16  S.  W.  Pulleys $14  60 

2  24x14x2  7/16  S.  W.  Pulleys 27  20 

1  24x10x3  y^  S.  W.  Pulleys 10  45 

1  12x6x2  7/16  S.  W.  Pulleys 3  55 

55  80 

Less  50%. 

Bought  of  Buffalo  Belting, 

36  ft.  8"  Belt $  36  72 

169  ft.  6"   Belt 128  44 

165  16 

Less  50,  10  and  10%. 

Bought  of  Star  Oil  Co., 

3  Bbls.  Ker.  Oil,  154  Gal.  at  6Hc. 
Bought  of  Fuller  &  Warren  Co., 

1  Hot  Water  Heater 297  50 

Bought  of  F.  O.  Pierce  &  Co., 

10  Gal.  No.  1  Coach  Varnish 16  00 

3  Gal.  Wagon  Varnish 1  50 

25  Gal  Paint 30  00 

Less  25%. 

Bought  of  Pittsburg  Supply  Co., 

6   M   Globe  Valves $6  00 

6  1  Globe  Valves  7  50 

6   m   Globe  Valves 9  00 

6  \V2   Globe  Valves 10  50 

33  00 

Less  50  and  5  off. 

103 


Mcintosh  Huntington  Co. 

500  ^x3  Carriage  Bolts $10  25 

500  Vs^S'A   Carriage  Bolts 11  00 

500  ^x4  Carriage  Bolts 11  75 

600  V8K4y2  Carriage  Bolts 12  50 

600  ^x5  Carriage  Bolts 13  25 

600  Hx6^  Carriage  Bolts 15  50 

74  25 

Less  70%. 

Walbridgs  &  Co., 

2655  lbs.  Sash  Weights , 29  20 

988  lbs.  Galv.   Iron 49  40 

12  Doz.  8"  Mill  Files 10  00 

5  Kegs  40d  Wire  Nails,  $1.75 8  75 

10  Kegs  lOd  Wire  Nails,  $1.90 19  00 

10  Kegs  8d  Wire  Nails,  $2 20  00 

JOURNAL    ENTRIES. 

Bills  Receivable   $200  00 

To  A.  W.  Story $200  00 

Part  payment  of  Heating  Contract. 

Pittsburg   Supply   Co 1  38 

To  Expense  Account  1  38 

Freight  on  Inventory,  2/11/04. 

Ahr  Bros 80 

To  A.  H.  Miller 80 

100  9^x3  bolts  charge  wrong. 

Expense  Account  12  75 

To  A.  H.  Miller 12  75 

Amt.  his  bill  for  blacksmithing. 

Bills  Receivable 425  00 

To  A.  W.  Story 425  00 

Walbridge  &   Co 26  43 

To  Purchase  Account   26  43 

Mdse.   Returned. 

Fuller  &  Watten  Co 97  50 

To  Bills  Payable 97  50 

Sales  Account  4  75 

To  Bolton  Carbon  Mfg.  Co 4  75 

Mdse.   Returned. 

Expense   Account    10  65 

To  Tonawanda  Lumber  &  Saw  Mill  Co 10  65 

Lumber  for  Repairs. 

SCHEDULE  OF  CASH   RECEIPTS   AND   DISBURSEMENTS. 

January  1,  Cash  on  Hand $685  00 

Cash  Receipts. 

Tonawanda  Lumber  &  Saw  Mill  Co $  2  80 

J.  Rhoney  60 

Bolton  Carbon  Mnfg.  Co 28  35 

G.  Royce   25  00 

Bolton  Carbon  Mnfg.  Co 19  05 

Ernest  Kleiner    33  38 

Hewett  Furniture  Co 55  54 

Cash  Disbursements. 

G.  Harris  &  Co $  11  29 

Fairbanks  &  Co 27  90 

Buffalo  Belting  Co 66  90 

Office  Supplies    11  53 

Labor 87  50 

January  1,  Inventory  on  Hand $315  00 

February  1,  Inventory  on  Hand $460  00 


104 


CHAPTER  XI 


Complete  Set  of   Double   Entry    Accounts;    Opening,    Operating    and 

Closing  of  Books ;  Trading  Accounts ;   Ledgers ;   Profit  and 

Loss  Accounts;  Balance  Sheets;  Balance  Adjustments. 

In  this  lesson  is  presented  for  the  careful  study  of  the  student  the  prin- 
ciples of  double  entry  book-keeping,  illustrated  by  the  accounts  of  a  Tea, 
Coffee  and  Sugar  Retail  Business. 

(84).  In  the  formation  of  partnerships,  the  subjects  to  be  considered  are 
the  amount  of  Working  Capital  required,  the  ability  of  the  partners  to  pay  in 
the  Capital,  the  ability  and  temperament  of  the  parties,  the  suitability  of  the 
location,  and  the  partnership  agreement.  It  is  a  habit  of  parties  forming  co- 
partnerships to  fail  to  draw  up  a  partnership  agreement  of  any  kind.  Ex- 
perience has  taught  that  under  all  circumstances  the  partnership  agreement 
is  desirable,  as  on  this  basis  the  accountant  must  proportion  the  profits  or 
losses  between  the  partners. 

''agreement."" 

"John  Smith  and  Thomas  Jones  have  this  day  formed  a  co-partnership 
under  the  firm  name  of  Smith  &  Jones  for  the  purpose  of  carrying  on  a  Re- 
tail Tea,  Coffee  and  Sugar  Business."  Each  party  has  contributed  two 
thousand  dollars  in  cash. 

"John  Smith  and  Thomas  Jones  have  further  agreed  that  each  party  is 
to  devote  his  whole  time  to  the  best  interests  of  the  business,  and  that  thev 
are  to  share  equally  in  the  Profits  or  Losses." 

"John  Smith  and  Thomas  Jones  further  agree  that  each  party  is  to  draw 
salary  at  the  rate  of  $1,500.00  per  annum." 

"John  Smith  and  Thomas  Jones  further  agree  that  John  Smith  is  to 
conduct  the  store  and  have  charge  of  the  finances ;  and  that  Thomas  Jones 
is  to  make  the  purchases,  act  as  solicitor,  and  to  have  charge  of  the  sales- 
men." 

"John  Smith  and  Thomas  Jones  further  agree  that  in  the  event  of  a 
dispute  arising  as  to  the  operation  of  the  business,  each  party  to  this  agree- 
ment is  to  select  one  representative,  the  two  representatives  selecting  a  third 
party  or  umpire.  The  three  parties  are  to  make  an  effort  to  adjust  the  dif- 
ferences between  the  partners,  and  in  the  event  of  their  failure  to  accomplish 
this  purpose,  they  are  to  place  a  valuation  on  the  interest  of  the  party  ap- 
pealing from  their  decision,  which  party,  by  the  signing  hereof,  agrees  to 
surrender  all  right,  title  and  interest  in  the  assets  of  Smith  &  Jones  in  con- 
sideration of  the  award  made  by  the  arbitrators." 

105 


The  above  paragraphs  recite  in  a  general  way  the  principles  under 
which  a  partnership  should  be  formed  so  as  to  reduce  the  possibility  of 
dissension  to  a  minimum.  On  account  of  the  business  being  a  new  ven- 
ture, there  are  no  opening  entries  to  be  made  except  the  crediting  of  Cash 
to  the  Capital  Account  of  the  respective  parties. 

Having  outlined  in  a  general  way  the  condition  under  which  the  busi- 
ness is  to  be  operated,  we  will  now  proceed  with  the  entries  made  on  the 
books  of  Smith  &  Jones,  and  make  the  proper  adjustments  in  order  to 
ascertain  the  profits  of  the  business. 

(8j).  Schedule  of  entries  made  on  the  books  of  Smith  &  Jones  from 
January  2nd  to  January  13th  inclusive. 

1905 
Jan.    2    Smith  &  Jones  commence  business,  each  party  contributing  $2,000.00  in  Cash 

Deposited  in  Bank. 

Rent  paid  for  January  50.00. 

Purchased  Horse  and  Wagon  for  325.00  cash. 

Purchased  Counters,  Desk,  Bins,  Coffee  Mills.    450.00  from  Henry  Adams. 

Received   goods   from    Henry   Wilson   &   Co.     15  barrels   of   Sugar  valued  at 

239.88 ;  45  bags  of  Coffee,  750.26 ;  12  chests  of  tea,  163.80. 

Terms: — Sugar  net  ten  days.  Coffee  1%  ten  days,  Tea  5%  ten  days. 

"     3    Cash  Sales,  Tea  12.60;  Coffee  18.90;  Sugar  19.65. 
Paid  for  cleaning  and  scrubbing  3.00. 

"      4    Purchased  set  of  Harness  50.00,  less  2%  for  spot  Cash. 

Cash  Sales,  Tea  9.50;  Coffee  13.65;  Sugar  23.45. 

Charges  to  Customers :— Tea  12.25;  Coffee  15.30;  Sugar  28.60. 
"      5    Smith  draws  15.00. 

Cash  Sales,  Tea  16.55;  Coffee  17.80;  Sugar  32.40. 
"      6    Smith  draws  10.00 ;  Jones  20.00 ;  Clerk  hire  and  driver  25.00. 

Cash  Sales:— Tea  35.15;  Coffee  39.10;  Sugar  45.25. 

Charges  to  Customers :— Tea  26.35;  Coffee  30.00;  Sugar  33.35. 

Collections  from  Customers: — 45.33. 

*'  8  Purchased  from  Jenkins  &  Co. :— 30  barrels  of  Sugar  valued  at  477.50 ;  100  bags 
of  Coffee  $1537.50;  35  chests  of  Tea  350.15 :— paying  $1000.00  Cash  and  60  day 
note  for  balance  at  6%. 

Cash  Sales,  Tea  15.30;  Coffee  17.50;  Sugar  12.60. 
Charges  to  Customers :— Tea  25.00;   Coffee  32.50;   Sugar  55.00. 
Paid  54.00  Premium  for  Fire  Insurance  on  Stock  and  Fixtures  3000.00. 
Policy  dated  Jan.  2nd,  1905. 

"      9    Paid  Henry  Adams  250.00  on  account. 

Cash  Sales:— Tea  23.40;  Coffee  35.20;  Sugar  28.35. 

Charges  to  Customers :— Tea  45.60 ;  Coffee  83.45 ;  Sugar  58.00. 

Collections  from  Customers: — 95.56. 

Sold  25  sugar  barrels  for  4.50,  35  Coffee  sacks  for  2.10  and  40  lbs.  of  Tea  lead 

for  1.20— Cash. 
"    10    Cash  Sales:— Tea  12.50;  Coffee  15.60;  Sugar  17.30. 

Charges  to  Customers :— Tea  35.40;  Coffee  96.75;  Sugar  82.00. 

Charge  Jenkins  &  Co.  with  42.55  being  the  allowance  made  by  them  for  damaged 

goods  as  follows :— Sugar  18.75;  Coffee  10.30;  Tea  13.50. 

106 


11  Paid  for  scrubbing  and  removing  rubbish  3.00. 
Postage  5.00 ;  Advertising  35.00. 

Cash  Sales:— Tea  11.35;  Coffee  46.75;  Sugar  33.25. 

12  Paid  Henry  Wilson  &  Co.  1138.25  in  settlement  of  their  invoice  of  the  2nd. 
Cash  Sales:— Tea  15.10;  Coffee  26.25;  Sugar  18.75. 

Charges  to  Customers: — Tea  45.90;  Coffee  97.50;  Sugar  55.00. 
Collections  from  Customers  : — 198.75. 

13  Smith  draws  25.00;  Jones  30.00;  clerk  hire,  driver,  and  extra  wagon  55.00. 


(86) 


CHARGE   TO   CUSTOMERS. 


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(8/).  The  form  of  invoice  shown  in  Figure  No.  1  is  made  in  dupli- 
cate by  the  use  of  carbon  paper,  the  original  being  removed  and  sent  to 
the  customer  with  the  goods.  The  original  invoices  are  perforated  and 
numbered  consecutively,  the  duplicate  being  the  sales  record  and  bearing 
the  same  number  as  the  original.  About  fifty  originals  and  fifty  dupli== 
cates  make  a  nice  size  book.  Postings  are  made  from  the  total  column 
of  the  duplicate  to  customers'  accounts.  The  details  of  the  Tea,  Coffee, 
Sugar  and  total  columns  are  forwarded  from  one  duplicate  to  the  other 
until  the  end  of  the  month  so  that  the  figures  can  be  made  up  for  the 
recapitulation  sheet  shown  in  figure  No.  3. 

The  figures  in  the  invoice  book  are  carried  forward  from  day  to  day 
until  the  end  of  the  month,  when  the  amount  of  the  total  column  should 
agree  with  the  total  of  the  charges  column  of  the  recapitulation  sheet.  In 
order  to  find  the  detail  of  sales  for  any  one  day,  the  total  at  the  end  of 
that  day  can  be  deducted  from  the  totals  of  the  day  previous. 

,^  (88)  customers'  ledgers. 

W  There  are  three  kinds  of  records  suitable  for  a  customers'  ledger,  bound 
ledger,  loose-leaf  ledger  and  ledger  cards.  For  various  reasons,  the  prin- 
cipal of  which  is  the  nature  of  the  accounts,  we  prefer  cards  for  the  recording 


107 


of  these  accounts  as  shown  in  figue  No.  2.  A  Trial  Balance  of  these  cards 
should  be  made  each  month,  which  balance  should  agree  with  that  shown 
by  the  Customers'  Accounts  Receivable  Controlling  Account  in  the  General 
Ledger. 


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One  advantage  in  the  use  of  ledger  cards,  is  that  when  an  account  is 
closed  the  card  can  be  removed  from  the  active  accounts  and  placed  in  a 
separate  drawer.  To  facilitate  posting  the  cards  should  be  kept  in  alphabet- 
ical order.  Under  no  circumstances  should  the  ledger  cards  be  used  as  a 
list  for  circularizing,  etc.  The  proper  scheme  would  be  to  have  a  separate 
card  index  giving  the  names  of  all  the  parties  with  whom  you  desire  to  do 
business.  The  card  should  be  suitably  ruled  so  that  proper  notations  can  be 
made  as  to  letters  and  circulars  mailed,  calls  from  salesmen,  etc. 

(PO),  '  RECAPITULATION   OF  SALES. 

The  total  charges  each  day,  as  shown  by  the  sales  record,  should  be 
entered  in  the  charge  column  and  pencil  figures  made  in  the  Tea,  Coflfee  and 
Sugar  Columns  so  that  when  the  total  cash  sales  are  recorded  in  the  cash 
column,  the  detail  of  that  total  can  be  added  to  the  pencil  figures  or  entered 


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109 


in  the  Tea,  Coffee  and  Sugar  Columns,  thus  arriving  at  the  total  Tea,  Cof- 
fee and  Sugar  Sales  for  the  day.  The  total  column  of  the  recapitulation 
sheet  equals  the  sum  of  the  cash  and  charges  columns,  as  also  total  of  the 
figures  shown  in  the  Tea,  Coffee  and  Sugar  Columns.  This  record  will  be 
found  to  be  an  excellent  check  on  the  accuracy  of  the  sales  sheets,  and  will 
prove  a  valuable  statistical  record. 

(Pl).  CASH  BOOK. 

The  details  of  the  transactions  already  outlined  affecting  cash,  are  en- 
tered in  the  cash  book,  as  shown  in  figure  No.  4.  The  only  explanation  that 
appears  to  be  necessary  is  that  the  receipts  for  the  day,  minus  the  expense 
paid  out,  were  deposited  the  following  day,  which  entry  appears  in  the  bank 
column  on  the  debit  side  of  the  cash  book.  No  other  explanation  is  neces- 
sary as  the  Ledger  Folios  are  marked  on  the  cash  book  and  each  entry  can 
be  traced  to  its  proper  account.  Only  the  total  of  the  accounts  having  spe- 
cial columns  in  the  cash  book  are  posted. 

(p2),  JOURNAL. 

The  journal  entries  above  the  first  fotings,  as  shown  in  figure  No.  5,  are 
those  made  up  to  the  point  of  forming  the  new  partnership.  The  subse- 
quent entries  are  those  connected  with  the  adjustment,  which  will  be  taken 
up  later  and  thoroughly  explained. 


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ADJUSTMENT   ENTRIES. 


I  115  38 


81  23 


2  80 


L.  F. 

L.  F. 

19 

Jan. 

13 

Wages. 

To  Smith,  Drawing  Acct, 
To  Jones,  Drawing  Acct, 

2 

4 

$  57  69 
57  69 

28 

Jan. 

13 

Adjustment  Acct. 
To  Unexp.  Rent., 
To  Unexp.  Ins. 

18 
21 

29  03 
52  20 

20 

Jan. 

13 

Misc.  Expense. 

To  Adjustment  Acct., 
Int.    on    B/P., 
Storage, 

$1  14 

1  m 

28 

2  80 

110 


CLOSING    ENTRIES. 

$2,326  25 

27 

Jan. 

13 

Inventory  Acct. 
To  Trading  Acct., 

16 

$2,326  25 

3,476  54 

16 

Jan. 

13 

Trading  Acct. 

To  Tea  Purchases, 
To  Coffee  Purchases, 
To  Sugar  Purchases, 

13 
14 
15 

500  45 

2,277  46 

698  63 

341  95 

22 

Jan. 

13 

Tea  Sales. 

586  25 

23 

Jan. 

13 

Coffee  Sales. 

542  95 

24 

Jan. 

13 

Sugar  Sales. 

7  80 

25 

Jan. 

13 

Misc.  Receipts. 

To  Trading  Acct., 

16 

1,478  95 

328  66 

16 

Jan. 

13 

Trading  Acct. 

To  Profit  and  Loss, 

17 

328  66 

266  95 

17 

Jan. 

13 

Profit  and  Loss. 
To  Rent, 
To  Wages, 
To  Misc.  Expenses, 
To  Insurance, 

18 
19 
20 
21 

20  97 

195  38 

48  80 

1  80 

16  69 

26 

Jan. 

13 

Discount. 

To  Profit  and  Loss, 

17 

16  69 

78  40 

17 

Jan. 

14 

Profit  and  Loss. 

To  Smith,  Drawing  Acct., 
To  Jones,  Drawing  Acct., 

2 
4 

39  20 
89  20 

(p^),  GENERAL  LEDGER. 

The  General  Ledger  can  be  either  a  bound  book  or  on  the  loose-leaf 
plan.  The  illustration  of  the  accounts  contained  in  this  lesson  are  made 
upon  loose-leaf  ledger  sheets.  The  loose-leaf  ledger  is  preferable  because 
the  accounts  can  be  continued  in  the  same  location  indefinitely  and  at  the 
same  time  admit  of  an  expansion  not  possible  with  a  bound  book.  We  do 
not  approve  of  cards  being  used  for  the  keeping  of  general  ledger  accounts 
as  the  entries  to  this  ledger  are  so  few  that  there  is  no  labor  saved. 

The  rotation  of  accounts  in  the  general  ledger  should  conform  to  the 
following  arrangement  as  nearly  as  possible : 

1 — Liabilities. 
2 — Assets. 

3 — Purchase  Accounts.  .  < 

4 — Expense  Accounts. 
5 — Sales  Accounts  &  Misc.  receipts. 

6 — Any  Personal  Accounts  other  than  Customers  or  Creditors 
Accounts. 

It  would  be  well  for  the  student  to  remember  the  above  classification 
in  opening  commercial  accounts.  Long  experience  has  proven  the  above 
arrangement  to  be  very  satisfactory,  so  much  so,  that  it  is  considered  stand- 
ard and  is  used  by  the  greater  majority  of  public  accountants. 

After  posting  the  entries  from  the  cash  book  and  journal  to  the  ledger 
accounts,  we  now  proceed  to  take  a  trial  balance  in  order  to  prove  the  mathe- 
matical accuracy  of  the  work  before  making  the  adjustments.  This  trial 
balance  is  shown  in  Figure  6  in  the  first  and  second  columns  immediately 
following  the  title  of  the  accounts.     The  inventories  and  a  memorandum,  of 

111 


the  adjustments  to  be  made  are  shown  beneath  the  trial  balance  as  a  matter 
of  convenience. 


TRIAL  BALANCE  AS  OF  JAN.  13,  1905. 
Smith  &  Jones  Dr.  Cr. 

Smith,  Capital  Account    $2,000  00 

Smith,  Drawing  Account  $     50  00 

Jones,  Capital  Account 2,000  00 

Jones,  Drawing  Account  50  00 

Bills  Payable 1,365  15 

Henry  Adams  200  00 

Jenkins  &  Co 42  55 

Furniture  and  Fixtures 450  00 

Horse  and  Wagon 375  00 

Customers'  Accounts  Receivable 518  31 

Cash 1,868  39 

Tea  Purchases  500  45 

Coffee   Purchases    2,277  46 

Sugar  Purchases   698  63 

Rent 50  00 

Wages 80  00 

Misc.  Expense  46  00 

Fire  Insurance  54  00 

Tea  Sales  341  95 

Coffee  Sales 586  25 

Sugar  Sales 542  95 

Misc.  Receipts 7  80 

Discount 16  69 

Adjustment  Account  


Trial    Balances    after 
Adjustments  are  made 


Dr. 


$     42  55 

450  00 

375  00 

518  31 

1,868  39 

500  45 

2,277  46 

698  63 

20  97 

195  38 

48  80 

1  80 


78  43 


Cr. 

$2,000  00 

7  69 

2,000  00 

7  69 

1,365  15 

200  00 


341  95 

686  25 

542  95 

7  80 

16  69 


$7,076  17        $7,076  17 


$7,060  79        $7,060  79 

INVENTORIES  AND  ADJUSTMENTS. 

Tea  Inventory  $  263  75 

Coffee  Inventory  1,860  15 

Sugar  Inventory   202  35 

ADJUSTMENTS. 

Unexpired  Rent. 

Partners'  Drawing  Account. 

Interest  on  Bills  Payable. 

Unexpired  Insurance. 

Storage  on  100  bags  of  Coffee,  5  days  at  10c  per  bag  per  month. 

(P4)»  The  form  of  the  General  Ledger  leaf  shown  in  this  lesson  is  what  is 
known  as  the  Balance  Ledger.  It  has  at  all  times  been  found  useful  to  show 
the  balance  of  a  ledger  account  at  frequent  intervals,  so  that  it  has  now  be- 
come quite  customary  to  provide  a  special  column  for  the  purpose. 

The  provision  of  balance  columns  also  does  away  with  the  old-fashioned 
method  of  ruling  off  accounts  each  month  and  bringing  down  the  balances, 
which  absorbs,  or  wastes  a  great  deal  of  valuable  time,  interferes  with  the 
convenient  checking  off  of  bills  paid,  and  increases  the  possibility  of  error. 
The  monthly  ruling  off  of  nominal,  or  representative  accounts  is  especially 
to  be  discouraged,  as  it  is  absolutely  essential  for  the  convenient  preparation 
of  comparative  statistics  that  the  totals  of  debits  and  credits  of  these  ac- 
counts be  obtainable  at  any  time. 

The  separate  balance  column  is  also  a  great  improvement  on  that  other 


112 


old-fashioned  plan  of  disfiguring  the  ledger  pages  with  balances  written  in 
pencil. 


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In  entering  the  difference  between  debits  and  credits  in  the  balance  col- 
umn, *'Dr."  or  "Cr."  need  not  be  noted  in  front  of  the  amount  of  the  balance, 
where  the  balance  of  the  account  is  obviously  a  debit  or  a  credit.  Account 
No.  2  gives  a  good  illustration  of  the  point  just  mentioned. 

Invariably  a  Partner's  Drawing  Account  will  show  a  debit  balance,  but 
on  account  of  the  circumstances  outlined  in  the  lesson,  this  account  at  the 
time  of  closing  the  books  shows  a  credit  balance,  consequently  "Cr."  is  noted 
in  front  of  the  figure  entered  in  the  balance  column.  No  "Dr."  or  "Cr."  no- 
tation is  necessary  for  Customers'  Accounts  Recivable  or  Cash  Account,  as 
these  accounts  invariably  show  a  debit  balance. 

In  order  that  the  method  of  making  the  entries  in  a  balance  ledger  may 
be  more  clearly  understood,  we  give  an  illustration  of  the  account  with  Wm. 
Johnson  &  Sons.  On  the  31st  of  January  the  balance  of  the  account  is 
$251.25,  which  amount  is  entered  in  the  balance  column  opposite  the  last 
entry  for  the  month.  This  procedure  is  followed  whether  the  balance  is  a 
debit  or  credit,  no  matter  how  many  lines  are  skipped  on  either  side  of  the 
account.  One  line  is  skipped  before  commencing  the  entries  for  the  follow- 
ing month.  This  feature  virtually  compels  sectionalization  of  the  work  and 
admits  of  localizing  errors  in  much  less  time  than  formerly  required  by  the 
old  method,  by  which  items  were  posted  beneath  each  other  without  regard 
to  keeping  the  entries  of  each  month  in  separate  blocks  or  sections. 

ADJUSTMENT  ENTRIES. 

(95)'  Wages  account  is  charged  and  the  drawing  account  of  Smith  & 
Jones  credited  with  two  weeks'  salary  for  each  party.  In  the  regular  course 
of  business  these  entries  should  be  made  once  each  month,  one-twelfth  of  the 
annual  salary  being  credited  to  each  party. 

Full  value  for  the  expenditures  on  account  of  Rent  and  Insurance  not 
having  been  received,  it  is  necessary  to  consider  the  unexpired  portion  of 


113 


these  accounts  as  an  asset.  At  the  time  of  adjustment  the  Rent  was  paid 
in  advance  for  eighteen  days,  and  the  Insurance  for  eleven  and  five-sixth 
months.  Adjustment  Account  is  debited  with  the  sum  of  these  two  items 
as  shown  in  the  journal  entry  and  the  respective  accounts  credited.  The  re- 
sult of  this  operation  is  that  only  the  balance  of  the  accounts  affected  will 
be  carried  to  Profit  &  Loss  instead  of  the  whole  amount  if  the  adjustment 
were  not  miade. 

There  are  two  items  in  the  nature  of  liabilities  requiring  adjustment, 
viz.,  five  days'  interest  on  Bills  Payable,  and  storage  on  the  coffee  in  the 
warehouse.  Miscellaneous  expense  is  charged  and  adjustment  account 
credited  with  the  sum  of  these  two  items  as  shown  in  the  journal  entry  under 
the  heading  adjustment  entries. 

The  balance  shown  by  the  adjustment  account  represents  the  differ- 
ence between  the  debits  and  credits  posted  to  this  account.  The  adjust- 
ment entries  are  reversed  after  the  books  are  closed,  which  process  closes  the 
adjustment  account  and  distributes  the  items  to  their  respective  accounts. 

TRIAL  BALANCE. 

After  the  adjustment  entries  are  posted  a  trial  balance  is  taken,  the  Re- 
sult being  the  figures  shown  in  columns  3  and  4  of  Figure  6.     It  is  very 
necessary  that  a  trial  balance  be  taken  before  closing  the  books  in  order  to 
prove  that  the  work  is  in  balance  up  to  that  point. 
(p6)  <:losing  entries. 

The  inventories  are  cIoSeH  into  trading  account,  inventory  account 
being  charged  as  shown  in  the  first  entry.  There  are  two  methods  of  en- 
tering inventories  on  the  books,  one  being  to  charge  inventory  account  and 
credit  the  respective  purchase  accounts.  The  second  method  is  the  one  used 
in  the  lesson,  and  for  the  present  we  prefer  that  the  student  use  this  method. 

Trading  Account  is  now  debited  and  the  respective  purchase  accounts 
credited  with  the  net  amount  of  the  purchases  for  the  period.  This  is  illus- 
trated in  the  second  entry. 

The  respective  sales  accounts,  together  with  miscellaneous  receipts 
properly  entering  into  trading,  are  now  transferred  to  trading  account  as 
shown  in  the  third  entry. 

The  balance  of  trading  account  now  shows  either  the  trading  profit  or 
trading  loss  for  the  period  under  review.  We  find  that  the  operations  have 
resulted  in  a  gross  profit  of  $328.66,  which  amount  is  charged  to  trading  ac- 
count and  credited  to  profit  and  loss. 

The  cost  of  operating  the  business  is  now  charged  to  profit  and  loss, 
the  respective  accounts  being  credited  as  shown  in  the  fifth  entry.  Discount 
has  been  deducted  from  remittances  sent  to  creditors  to  the  extent  of  $16.69. 
This  amount  is  transferred  to  Profit  &  Loss  discount  being  debited,  and 

114 


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Profit  &  Loss  credited.     Had  any  discount  been  allowed  to  coustomers  the 
entry  would  be  the  reverse  of  the  one  just  mentioned. 

All  items  entering  into  the  Trading  and  Profit  &  Loss  Account  having 
been  considered,  the  balance  of  Profit  &  Loss  account  now  represents  either 
a  profit  or  a  loss.  The  balance  of  this  account  appears  as  a  credit  and  is 
consequently  a  profit.  Under  ordinary  circumstances  this  profit  would  be 
transferred  equitably  to  the  credit  of  the  Capital  Account  of  the  respective 
partners,  or  to  a  Surplus  Account.  However,  as  the  books  are  being  closed 
for  the  purpose  of  taking  in  a  new  partner,  this  arrangement  could  not  be 
carried  out,  and  at  the  same  time  preserve  the  equilibrium  between  the  capi- 
tal accounts  of  the  respective  partners.  For  this  reason  the  profit  from  the 
operation  of  the  business  has  been  divided  between  Smith  &  Jones,  one-half 
of  the  profit  being  credited  to  the  Drawing  Account  of  each  partner. 

THE  MAKING  OF  STATEMENTS  FOR  THE  PROPRIETOR. 

The  true  value  of  a  book-keeper  to  the  employer  is  best  demonstrated 
in  the  ability  to  give  accurate  reports  showing  the  operations  and  condition 
of  the  business  whenever  this  information  is  desired.  Much  skill  and  in- 
genuity is  required  where  the  business  is  of  a  complex  nature  and  the  de- 
tails not  properly  recorded.  It  is  of  vital  importance  that  records  be  kept 
that  will  give  full  particulars  in  a  clear  and  concise  manner  so  that  the  sta- 
tistical value  will  not  be  lost,  and  it  is  for  the  purpose  of  developing  the  con- 
structive ability  of  the  student  that  the  exercises  in  connection  with  this  les- 
son have  been  made  up. 

In  studying  the  statements  which  we  are  about  to  present,  the  student 
should  first  place  himself  in  the  position  of  an  intended  purchaser  of  the 
business  and  ask  himself  the  same  questions  he  would  require  the  party  to 
answer.  The  first  question  would  be:  What  is  the  volume  of  the  busi- 
ness? This  is  quickly  answered  by  reference  to  the  recapitulation  of  sales 
shown  in  Figure  No.  3.  The  next  question  is.  What  are  the  expenses?  The 
ledger  accounts  show  at  once  the  operating  expense.  How  much  credit 
business  do  you  carry  on,  and  how  do  the  customers  pay?  This  informa- 
tion is  hown  by  the  customers'  accounts  receivable  controlling  in  the  general 
ledger.  The  amount  of  the  purchases  is  shown  in  the  respective  purchase 
accounts.  In  purchasing  a  business  the  feature  most  interesting  to  the  pur- 
chaser is:  How  much  capital  is  invested  in  the  business?  What  are  the 
profits  ? 

STATEMENTS  TAKEN  FROM  THE  BOOKS  OF  SMITH  &  JONES,  AS  OF  JAN.  I4TH,  I905. 

TRADING    ACCOUNT. 

(98).  Tea. 

Purchases    $   500'.45       Sales    $   341.95 

Profit    106.45      Misc.   Receipts    1.20 

Inventory    263.75 

$   606.90  

^t  $   606.90 

116 


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117 


Coifee. 

Purchases    $2,277.46       Sales    , .....$  586.25 

Profit 171.04       Misc.  Receipts 2.10 

Inventory    1,860.15 


$2,448.50 


$2,448.50 


Sugar. 

Purchases   $  698.63       Sales    $  542.95 

Profit    51.17       Misc.  Receipts  4.50 

Inventory    202.35 


$   749.80 


$   749.80 


(99).  PROFIT  AND  LOSS  ACCOUNT. 

Rent   $     20.97       Trading  Profit  on  Tea $  106.45 

Wages    195.38       Trading  Profit  on  Coffee 171.04 

Misc.  Expense 48.80      Trading  Profit  on  Sugar 51.17 

Insurance    1.80      Discount    16.69 

Surplus    78.40  

$  345.35 


$   345.35 


(100).  BALANCE  SHEET. 

Furniture  and  Fixtures $  450.00  Smith,  Capital  Account .$2,000.00 

Horse  and  Wagon 375.00  Jones,  Capital  Account 2,000.00 

Unexpired  Rent  and  Insurance 81.23  Bills  Payable  1,365.15 

Customers'  Accounts  Receivable..  518.31  Henry  Adams  200.00 

Jenkins  &  Co 42.55  Smith,  Drawing  Account 46.89 

Inventories    2,326.25  Jones,   Drawing   Account 46.89 

Cash   1,868.39  Interest  and  Storage  Accrued 2.80 


$5,661.73  $5,661.73 


In  view  of  the  explanations  already  given,  the  only  accounts  requiring 
a  review  are  the  Tea,  Coffee  and  Sugar  Trading  Accounts.  These  accounts 
are  debited  with  the  purchases  and  credited  with  the  sales,  the  amount  re- 
ceived from  the  sale  of  empty  packages  and  the  inventory.  The  balance,  as 
shown,  represents  a  profit  in  each  case,  which  profit  is  carried  to  Profit  & 
Loss  Account.  The  Profit  &  Loss  Account  requires  no  further  explanation. 
The  balance  sheet  is  virtually  a  trial  balance  of  the  books  after  all  nominal 
accounts  are  closed  and  the  adjustment  entries  reversed  as  already  referred 
to. 

A  careful  study  of  the  ledger  accounts  in  connection  with  the  books  from 
which  the  postings  are  made  will  give  the  student  valuable  information  as 
to  the  correct  method  of  keeping  a  set  of  double  entry  books  so  that  they 
will  show  the  true  condition  of  the  business. 

EXERQSES 

Henry  Davis  and  William  Johnson  have  this  day  (Oct.  1, 1904),  formed 
a  co-partnership  under  the  name  of  Davis  &  Johnson,  for  the  purpose  of  con- 
ducting a  Wholesale  and  Retail  Coal  business. 

Henry  Davis  has  contributed  cash  $10,000.00.  William  Johnson  turned 
over  to  the  new  concern  a  piece  of  land  with  wharfage  facilities  and  switches 

118 


valued  at  $7,500  and  $2,500  cash.     Each  party  is  to  share  equally  in  the 

profits  or  losses  arising  from  the  operation  of  the  business. 

Oct.  2— Purchased  2  wagons,  $600 ;  4  horses,  $800 ;  harness,  $250,  for  Cash. 

Oct.  3 — Purchased  a  one-sixth  interest  in  the  Hamilton  Mine,  giving  Cash 
$5,000,  and  note  at  60  days  for  $10,000  with  interest  at  4^^%.  In 
consideration  of  our  becoming  stockholders,  we  are  to  get  a  dis- 
count of  5%  off  the  net  price  of  purchases  in  excess  of  $5,000.00 
per  month. 
The  other  transactions  for  the  three  months  ended  Dec.  31,  1904,  were 

as  follows : 

Purchases  from  Hamilton  Mine $18,000.00 

Purchases  from  Century  Mine 8,000.00 

Sales  Wholesale  Ledger  (Less  frt.) 23,475.00 

Sales  Retail  Ledger  7,025.00 

Sales  Retail  from  yard  for  Cash 695.00 

Paid  Hamilton  Mine  on  account  in  Cash 14,100.00 

Paid  Century  Mine   7,200.00 

Received  Cash  from  Wholesale  Customers 20,300.00 

Received   from   Wholesale    Customers    freight   vouchers    to   be 
charged  against  Hamilton    Mine    on    account    of    freight 

charges  exceeding  guaranteed  rate , 865.00 

Received  Cash  from  Retail  Customers 4,850.00 

Allowed  discount  to  Wholesale  Customers 266.00 

Allowed  discount  to  Retail  Customers 84.50 

Feed    200.00 

Stable   Expense    55.00 

Drivers    150.00 

Yard  Men   460.00 

Salaries  of  Partners  900.00 

Salaries  of  Office  Help  600.00 

Office  Expenses 52.00 

Furniture   and   Fixtures 305.00 

Bins,  Screens  and  Scale  for  Yard 1,500.00 

Dec.  1st,  Henry  Davis  loans  the  business  $5,000 — in  cash  for  60  days  at  6%. 

Anthracite  Inventory  Dec.  31,  1904 $  1,835.00 

Bituminous  Inventory  Dec.  31,  1904 650.00 

The  purchases  were  divided  as  follows: — 

From  Hamilton  Mine,  Anthracite $12,350.00 

From  Hamilton  Mine,  Bituminous 5,650.00 

From  Century  Mine,  Anthracite 3,300.00 

From  Century  Mine,  Bituminous   4,700.00 

The  Sales  tickets  show  the  following  distributions: — 

Anthracite    $17,960.00 

Bituminous    13,235.00 

1.  See  Th.  M.  par.  163  and  503.  Make  opening  entries  on  the  books 
of  Davis  &  Johnson. 

2.  Make  such  further  Journal  entries  as  you  deem  necessary  to  show 
the  transactions,  other  than  Cash,  on  the  books.     Making  Closing  entries. 

3.  Draw  a  form  of  Purchase  Book  dividing  the  purchases  into  Bitum- 
inous and  Anthracite,  also  showing  a  maturity  record  similar  to  the  illus- 
tration contained  in  Th.  M.  par.  150. 

4.  Draw  a  form  of  Invoice  Record  and  Sales  book  combined,  dividing 
the  sales  into  Bituminous  and  Anthracite. 

5.  See  Th.  M.  par.  326.     Make  up  Cash  Account,  drawing  such  col- 

119 


umns  as  you  think  necessary  to  provide  for  the  receipts  and  disbursements. 
All  receipts  are  deposited  and  all  expenditures  made  by  checks.  Provide 
columns  in  Cash  Book  for  keeping  a  record  of  the  Bank  account. 

6.  Show  Trial  Balance  taken  from  the  books  after  the  Journal  and 
Cash  Book  entries  are  posted.  It  is  not  necessary  to  send  in  the  ledger  ac- 
counts themselves ;  the  Trial  Baalnce  will  be  sufficient. 

7.  See  Th.  M.  par.  345.  Make  up  separate  Trading  Accounts  showing 
the  Gross  Profit  on  Anthracite  and  on  Bituminous  Coal,  carrying  the  result 
to  a  General  Trading  Account. 

8.  Charge  General  Trading  Account  with  such  expenses  as  were  in- 
curred in  handling  and  delivering  the  coal.  Carry  the  result  to  Profit  & 
Loss. 

9.  Charge  Profit  &  Loss  with  the  general  and  executive  expense. 
Close  Profit  &  Loss  Account  by  transferring  the  net  result  to  the  part- 
ners' Capital  Account. 

10.  Prepare  Balance  Sheet. 


120 


CHAPTER  XII 


Opening  and  Closing  Entries ;  Treatment  of  Good-will ; 
Anticipated  Discounts 

It  would  be  impossible  to  present  anything  more  instructive  and 
practically  useful  than  the  solving  of  actual  business  problems  connected 
with  the  opening  and  closing  of  books  of  account. 

In  a  recent  number  of  The  Business  Man's  Magazine,  we  propounded 
a  problem  which  involved  the  change  of  books  of  account  (with  opening 
and  closing  entries)  from  a  single  proprietorship  to  a  partnership,  and  from 
the  partnership  to  a  corporation.  This  problem  also  included  the  prepara- 
tion of  Balance  Sheets,  Trading,  and  Profit  and  Loss  accounts  as  at  the 
dates  of  the  business  changes. 

The  interest  aroused  by  this  problem  was  very  great,  and  the  Competi- 
tion Editor  was  literally  snowed  under  with  solutions,  many  of  which  were 
of  great  merit  and  very  fully  covered  all  the  necessary  points. 

For  the  benefit  of  students  of  this  Course,  we  now  reproduce  the 
problem  as  originally  stated,  and  two  of  the  best  solutions  received,  and 
recommend  that  close  attention  be  given  to  them  and  that  they  be  pre- 
served as  a  guide  for  reference  in  case  similar  problems  may  arise  in  the 
student's  own  business  experience. 

(lOl)  THE  CASE  OF  MR.  MONTGOMERY  CURTIS. 

When  Mr.  Montgomery  Curtis  decided  to  become  his  own  master  and 
engage  in  business  for  himself  the  first  matter  to  take  into  consideration 
was  the  question  of  capital.  Fortunately,  he  was  well  and  favorably  known 
among  the  business  men  of  his  city,  and  when  Mr.  Samuel  Peterson  refused 
to  give  him  an  interest  in  the  business  Mr.  Montgomery  Curtis  had  done  so 
much  to  establish,  the  fact  elicited  a  considerable  amount  of  unfavorable 
criticism  on  the  employer  and  sympathy  for  the  employe.  Consequently 
Mr.  Montgomery  Curtis  found  little  difficulty  in  borrowing  $10,000,  with 
which  amount  he  established  a  small  factory  and  proceeded  to  organize  a 
business  in  competition  with  that  of  his  recent  employer.  In  this  under- 
taking he  was  remarkably  successful,  and  at  the  close  of  the  first  year  made 
the  following  inventory  of  his  financial  condition : 

121 


Bills  Payable,  $4,000  ($6,000  paid  off  loan) 

Accounts  Payable  , $  6,574  50 

Cash 1,752  50 

Accounts  Receivable 12,694  18 

Inventory 4,765  90 

Salaries 3,500  00 

Sundry  Expenditures 435  50 

Manufacturing  Expenses *11,759  50 

(*In  this  account  is  included  everything  pertaining  to  cost  of  produc- 
tion except  purchases  of  raw  material.) 

During  this  first  year  Mr.  Montgomery  Curtis  kept  his  own  books. 
He  did  not,  however,  attempt  to  keep  them  by  double  entry.  His  sales 
book,  however,  showed  that  the  amount  of  sales  for  the  year  was  $35,643.25, 
while  from  the  invoices  it  was  ascertained  that  the  total  purchases  amount- 
ed to  $16,076.07. 

The  enterprise  having  been  so  remarkably  successful,  Mr.  Montgomery 
Curtis  now  made  arrangements  for  the  admission  of  a  partner,  a  Mr.  C.  W. 
Pacy.  Pack  contributed  $10,000  to  the  partnership,  and  it  was  agreed  that 
the  partners  should  share  equally  in  all  profits  or  losses. 

It  was  also  decided  to  employ  a  book-keeper,  and  have  the  books  kept 
hereafter  by  double  entry. 

From  the  particulars  given,  make  a  trial  balance  and  submit  the  neces- 
sary journal  entries  to  complete  the  double  entry  principle. 

Ascertain  interest  of  Mr.  Montgomery  Curtis  in  the  business  and  credit 
him  with  same. 

At  the  close  of  the  second  year  the  business  of  Curtis  &  Pacy  had 
largely  increased ;  in  fact  to  such  an  extent  that  additional  working  capital 
was  found  to  be  absolutely  indispensable.  The  balance  sheet,  trading  and 
profit  and  loss  accounts  of  the  partnership  were  as  follows : 

ASSETS.  BALANCE    SHEET.  LIABILITIES. 

$  3,505  00         Cash, 
20,962  15         Accounts  Receivable, 
7,852  60         Inventories, 

Accounts  Payable,  $  8,750  00 

M.  Curtis'  Investment  Account,  8,638  08 

C.  W.  Pacy's  Investment  Account,  10,000  00 

Surplus,     •  4,931  67 

$32,319  75  $32,319  75 

DR.  TRADING  ACCOUNT.  CR. 

$  4,765  90         Inventory,  Jan.  1st, 
27,485  00         Purchases, 
18,650  00         Manufacturing  Expense, 

Sales,  $52,769  47 

Inventory,  Dec.  31st,  7,852  60 

9,721  17         Gross  Profit, 

$60,622  07  $60,622  07 

DR.  PROFIT  AND   LOSS   ACCOUNT.  CR. 

Gross  Profit  brought  down,  $9,721  17 

$  4,000  00         Salaries, 

789  50         Sundrv  Expenses, 
4,931  67         Net  Profit, 

$  9,721  17  $  9,721  17 

i 
1 9.9!  h 


It  is  now  decided  to  incorporate  for  $50,000,  the  partners  taking  stock  in 
accordance  with  their  respective  interests  in  the  partnership,  a  Mr.  C.  H. 
Vaughan  subscribes  for  $10,000  of  stock,  and  Mrs.  Pacy  for  $5,000.  Stock 
to  the  amount  of  $500  each  (50  shares)  is  donated  to  the  following  employes 
in  recognition  of  valuable  services : 

A.  D.  Speedie, 

W.  F.  Cunningham, 

J.  H.  Gorke. 

The  good  will  of  the  business  is  valued  at  $2,500. 

J.  R.  Daines,  a  traveling  salesman,  has  a  credit  on  the  books  amounting 
to  $300  and  he  agrees  to  accept  stock  in  settlement  of  same. 

Make  the  necessary  closing  entries  on  the  partnership  books,  and  open- 
ing entries  on  the  books  of  the  new  corporation. 

(102)  FIRST  SOLUTION. 

Journal  Entries  to  change  books  of  Montgomery  Curtis  from  single  to  double  entry : 

Raw  Material  Purchases,  $16,076  07 

To  Accounts  Payable  and  Cash  (already 

posted),  $16,076  07 

(Above  taken  from  invoices  on  file, 
paid  and  unpaid.) 
Accounts  Receivable  and  Cash  (already 

posted),  $35,643  25 

To  Sales  Manufactured  Material,  36,643  25 

(Represented  by  total  footings  of  Sales 
Book.) 

TRIAL  BALANCE. 

$16,076  07         Raw  Material  Purchases, 

Sales  Manufactured  Material,  $35,643  25 

Bills  Payable,  4,000  00 

Accounts  Payable,  6,574  50 


$10,000  00 
$56,217  75 


11,752  50 

Cash, 

12,694  18 

Accounts  Receivable, 

3,500  00 

Salaries, 

435  50 

Sundry  Expenses, 

11,759  50 

Manufacturing  Expense, 

C.  W.  Pacy,  Investment, 

$56,217  75 

RALANCE  SHEET. 

$  4,765  90 

Inventory, 

11,752  50 

Cash, 

12,694  18 

Accounts  Receivables 

Bills  Payable, 

Accounts  Payable, 

C.  W.  Pacy,  Investment, 

Surplus  (Montg.  Curtis,  net  worth), 

$29,212  58 

TRADING    STATEMENT. 

Manufactured  Material  Sales, 
Manufactured  Material  Inventory, 
16,076  07         Raw  Material  Purchases, 
11,759  50         Manufacturing  Expense, 
12,573  58        Gross  Profit— carried  down. 


$40,409  15 


4,000  00 

6,574  50 

10,000  00 

8,638  08 

$29,212  58 

$35,643  25 
4,765  90 

$40,409  15 

123 


PROFIT    AND    LOSS. 


Gross  Profit  brought  down,  $12,573  58 

$  3,500  00         Salaries, 

435  50         Sundry  Expenses, 
8,638  08         Net  Profit  to  Montg.  Curtis, 


$12,573  58 

JOURNAL, 

$12,573  58 

Profit  and  Loss,                                                         $8,638  08 

To  Montgomery  Curtis, 

$8,638  08 

)urnal  Entries  to  close  books  of  Curtis  &  Pacy: 

Surplus, 

$4,931  67 

C.  W. 

Pacy, 

2,465  84 

Good  Will, 

2,500  00 

Montgomery  Curtis, 

1,250  00 

C  W. 

Pacy, 

NEW    BALANCE    SHEET. 

1,250  00 

Montgomery  Curtis,                                               $2,465  83 

$  3,505  00 

Cash, 

20,962  15 

Accounts  Receivable, 

7,852  60 

Inventories, 

2,500  00 

Good  Will, 

Accounts  Payable, 

8,750  00 

M.  Curtis,  Investment  Account, 

12,353  91 

C.  W.  Pacy,  Investment  Account, 

13,715  84 

$34,819  75  $34,819  75 

Journal  Entries  to  transfer  business  to  Corporation: 

The  Curtis  &  Pacy  Co.,  $26,069  75 

Accounts  Payable,  8,750  00 

To  Cash,  $  3,505  00 

Accounts  Receivable,  20,962  15 

Inventories,  7,852  60 

Good  Will,  2,500  00 

M.  Curtis,  $12,353  91 

C.  W.  Pacy,  13,715  84 

To  The  C.  W.  Pacy  Co.,  26,069  75 

Opening  Journal  Entries  on  books  of  New  Corporation : 
The  Curtis  &  Pacy  Co.,  incorporated  Jan'y  1,  19..    Authorized  stock, 
$50,000.00 ;  5,000  shares,  par  value  $10.00  each. 

Subscription,  $50,000  00 

To  Capital  Stock,  $50,000  00 

Montgomery  Curtis,  1,236  shares,  12,360  00 

C  W.  Pacy,  1,372  shares,  13,720  00 

C  H.  Vaughan,  1,000  shares,  10,000  00 

Mrs.  C  W.  Pacy,  500  shares,  5,000  00 

A.  D.  Speedie,  50  shares,  500  00 

W.  F.  Cunningham,  50  shares,  500  00 

J.  H.  Gorke,  50  shares,  500  00 

J.  R.  Daines.  30  shares,  500  00 

Treasury  Stock,  712  shares,  7,120  00 

To  Subscription,  50,000  00 

The  Company  is  authorized  by  the  Board  of  Directors  to  accept  in  part 
payment  of  shares  subscribed  for  by  M.  Curtis  and  C.  W.  Pacy  their  respec- 
tive interests  in  the  co-partnership  of  Curtis  &  Pacy  as  shown  by  their 
balance  sheet: 

124 


$  3,505  00 

20,962  15 

7,852  60 

2,500  00 

8,750  00 

12,353  91 

13,715  84 

Cash, 

Accounts  Receivable, 

Inventories, 

Good  Will, 

To  Accounts  Payable, 

To  M.  Curtis, 

To  C.  W.  Pacy, 

The  Board  of  Directors  authorizes  that,  in  consideration  of  valuable 
services  rendered,  the  shares  subscribed  for  by  A.  D.  Speedie,  W.  F.  Cun- 
ningham and  J.  H.  Gorke,  be  donated  to  them. 

Donation  Account,  $  1,500  00 

To  A.  D.  Speedie,  $    500  00 

To  W.  F.  Cunningham,  500  00 

To  J.  H.  Gooke,  500  00 

J.  R.  Daines,  Personal  Account,  300  00 

To  J.  R.  Daines,  Stock  Account,  300  00 

Assuming  that  subscriptions  of  C.  H.  Vaughan  $10,000.00,  Mrs.  C.  W. 
Pacy  $5,000,  balance  on  subscriptions  of  Montgomery  Curtis  $6.09  and  C. 
W.  Pacy  $4.16,  have  been  paid  in  cash  and  properly  entered  on  cash,  I 
submit  the  following: 

BALANCE    SHEET. 

Capital  Stock,  $50,000  00 

$  7,120  00         Treasury  Stock, 
18,515  25         Casn, 
20,962  15         Accounts  Receivable, 
7,852  60         Inventories, 
2,500  00         Good  Will, 
1,500  00         Donation, 

Accounts  Payable,  8,450  00 


(103) 


$58,450  00 

SECOND  SOLUTION. 

LEDGER    OF    M.    CURTIS. 

$12,694  18 

Accounts  Receivable, 

11,759  50 

Manufacturing  Expense, 

435  50 

Sundry  Expense, 

3,500  00 

Salary  Account, 

16,076  07 

Purchases, 

Sales, 

Accounts  Payable, 

Bills  Payable, 

1,752  50 

Cash  Book  Balance, 

$58,450  00 


$35,643  25 
6,574  50 
4,000  00 

$46,217  75  $46,217  75 

I  am  taking  it  for  granted  that  Mr.  Curtis  had  acocunts  opened  in  his 
ledger  for  all  of  the  figures  given  of  his  financial  condition,  of  which  the 
above  is  a  copy. 

I  do  not  find  It  necessary  to  make  any  journal  entry  to  complete  the 
double  entry  system.  By  opening  accounts  and  posting  thereto  the  pur- 
chases and  sales  (as  indicated  in  red  ink)  I  have  all  the  figures  necessary 
to  make  the  books  balance.  Having  done  this  my  next  step  is  to  transfer 
all  necessary  accounts  to  the  trading  account  and  by  including  the  inventory 
it  will  appear  as  follows : 

125 


TRADING    ACCOUNT. 

Sales, 

$35,643  25 

$16,076  07 

Purchases, 

11,759  50 

Manufacturing  Expenses, 

Inventory, 

4,765  90 

12,573  58 

Gross  Profit, 

$40,409  15  $40,409  15 

Having  found  the  gross  profit  I  proceed  by  transferring  the  gross 
profit,  salaries  and  sundry  expenses  to  Profit  and  Loss  account,  to  ascertain 
the.net  profit. 

PROFIT   AND  LOSS   ACCOUNT. 

Gross  Profit,  $12,573  58 

$  3,500  00         Salaries, 

435  50         Sundry  Expenses, 
8,638  08         Net  Profit, 


$12,573  58  $12,573  58 

Now  that  I  have  found  the  net  profit  and  Mr.  Curtis  is  going  to  admit 
a  partner,  I  open  a  stock  account  for  him  and  transfer  the  net  profit  to  his 
credit,  which  will  show  his  net  worth.     The  following  is  the 


TRIAL    BALANCE. 

$  1,752  50 

Cash, 

12,694  18 

Accounts  Receivable, 

4,765  90 

Inventory, 

Bills  Payable, 

$  4,000  00 

Accounts  Payable, 

6,574  50 

M.  Curtis's  Stock  Account, 

8,638  08 

$19,212  58  $19,212  58 

Mr.  Pacy  enters  by  paying  $10,000.00  cash.     I  open  a  stock  account  for 
him  and  credit  him  with  it  through  the  cash  book. 

After  doing  business  for  one  year  I  find  the  trading  account  as  follows : 


7,852  60 


$  4,765  90 
27,485  00 
18,650  00 

9,721  17 

TRADING   ACCOUNT. 

Inventory,  Jan.  1st, 
Purchases, 

Manufacturing  Expenses, 
Inventory,  Dec.  31st, 
Gross  Profit, 

$60,622  07  $60,622  07 

Having  found  the  gross  profit  I  proceed  by  transferring  the  gross 
profit,  salaries  and  sundry  expenses  to  Profit  and  Loss  account  to  ascertain 
the  net  profit. 

PROFIT   AND  LOSS   ACCOUNT. 

Gross  Profit,  $  9,721  17 

$  4,000  00         Salaries, 

789  50         Sundry  Expenses, 
4,931  67         Net  Profit, 


$  9,721  17  $  9,721  17 

As  Mr.  Curtis  and  Mr.  Pacy  are  to  share  equally  all  profits,  I  balance 
the  Profit  and  Loss  account  by  transferring  to  Mr.  Curtis'  stock  account 

126 


one-half  of  the  net  profit  ($2,465.83)  and  to  Mr.  Pacy's  stock  account  one- 
half  of  net  profits  ($2,465.84). 

Having  decided  to  incorporate  and  valuing  the  good  will  of  the  business 
at  $2,500.00,  which  each  shall  share  equally,  I  make  the  following  journal 
entry : 

$  2,500  00     Good  Will,  Dr.  to  Sundries, 

M.  Curtis,  $  1,250  00 

C  W.  Pacy,  1,250  00 

Now  that  all  entries  are  made  and  the  books  are  closed  I  submit  the 
following : 

TRIAL    BALANCE. 

$  3,605  00         Cash  on  Hand, 
20,962  15         Accounts  Receivable, 
7,852  60         Inventory, 
2,500  00         Good  Will, 

Accounts  Payable,  $  8,750  00 

M.  Curtis,  Stock  Account,  12,353  91 

C.  W.  Pacy,  Stock  Account,  13,715  84 


$34,819  75  $34,819  75 

As  the  corporation  is  to  take  over  all  assets  and  liabilities  of  Curtis  & 
Pacy  I  make  the  following  journal  entries  to  close  the  books  of  Curtis  & 
Pacy: 

JOURNAL  ENTRY   NO.    1. 

$31,314  75         The  Curtis  &  Pacy  Co.,  Dr.  to  Sundries, 

Accounts  Receivable,  $20,962  15 

Merchandise   as  per   Inventory,  7,852  60 

Good  Will,  2,500  00 

JOURNAL   ENTRY    NO.    2. 

Sundries  Dr.  to  The  Curtis  &  Pacy  Co.,  $34,819  75 

$  8,750  00         Accounts  Payable, 
12,353  91         M.  Curtis, 
13,715  84         C  W.  Pacy, 

As  these  entries  will  show  that  the  old  firm  is  debtor  to  The  Curtis  & 
Pack  Co.  $3,505.00,  I  draw  a  check  to  the  order  of  The  Curtis  &  Pacy  Co. 
This  will  then  balance  all  acounts  of  the  old  firm.  Having  closed  the  books 
of  the  old  firm,  I  am  now  prepared  to  open  the  books  of  the  corporation. 

As  The  Curtis  &  Pacy  Co.  is  incorporated  for  $50,000.00  and  there  are 
subscribers  to  the  amount  of  $42,860.00,  I  make  the  following  journal  entry, 
which  also  shows  how  I  arrive  at  the  amount  subscribed  for: 

Sundries  Dr.  to  Capital  Account,  $50,000  00 

$42,860  00         Subscription  Account, 
7,140  00         Treasury  Stock, 

M.    Curtis  subs,  for  1,235 

shares  at  $10.00  each,  $12,350  00 

C.    W.    Pacy  subs,  for  1,371 

shares  at  $10.00  each,  13,710  00 

C   H.  Vaughan        subs,  for  1,000 

shares  at  $10.00  each,  10,000  00 

Mrs.    Pacy  subs,  for     500 

shares  at  $10.00  each,  5,000  00 

A.  D.  Speedie  subs,  for       50 

shares  at  $10.00  each,  500  00  

127  I   Uk.,?'^^^^^ 


"^'V,],% 


ITY  I 


N.  F,  Cunningham,  subs,  for       50 

shares  at  $10.00  each,  $12,350  00 

J.  H.  Gorke,  subs,  for       50 

shares  at  $10.00  each,  500  00 

J.  R.  Daines,  subs,  for       30 

shares  at  $10.00  each,  300  00 

As  The  Curtis  &  Pacy  Co.  are  taking  over  all  assets  and  liabilities,  I 
make  the  following  journal  entry: 

JOURNAL  ENTRY   NO.    1. 

Sundries,  Dr.  to  Curtis  &  Pacy,  $31,314  75 

$20,962  15         Accounts  Receivable, 
7,852  60         Merchandise, 
2,500  00         Good  Will, 

JOURNAL   ENTRY   NO.   2. 

$34,819  75         Curtis  &  Pacy,  Dr.  to  Sundries, 

Accounts   Payable,  $  8,750  00 

M.  Curtis,  12,353  91 

C.  W.  Pacy,  13,715  84 

As  Curtis  &  Pacy  had  given  to  The  Curtis  &  Pacy  Co.  a  check  for 
$3,505.00,  this  will  balance  the  account  of  Curtis  &  Pacy. 

Now  I  proceed  to  balance  the  subscription  account  by  the  following 
entries: 

JOURNAL    ENTRY. 

Sundries,  Dr.  to  Subscription  Account,  $27,860  00 

$12,350  00         M.  Curtis, 
13,710  00         C.  W.  Pacy, 
300  00        J.  D.  Raines, 
1,500  00         Donation  Account,  stocks  donated  to, 

A.  D.  Speedie,  $500  00 

W.  F.   Cunningham,  500  00 

J.  H.  Gorke,  500  00 

As  $1,500.00  in  stock  was  donated  I  open  an  account  called  Donation 
account  to  show  the  real  facts.  However  if  the  books  are  not  to  show  this 
gift  you  may  call  it  Commission  account  or  any  other  name  whereby  it 
may  appear  as  an  expense  in  disposing  of  the  stock. 

As  C.  H.  Vaughan  and  Mrs.  Pacy  pay  for  their  stock  with  cash,  this 
$15,000  being  posted  from  the  cash  book  will  balance  the  subscription 
account. 

The  books  of  The  Curtis  &  Pacy  Co.  are  now  opened  and  all  necessary 
entries  are  complete.     I  submit  the  trial  balance  as  it  now  appears : 


TRIAL  BALANCE. 

$18,505  00 

Cash  on  Hand, 

20,962  15 

Accounts  Receivable, 

7,852  60 

Merchandise, 

2,500  00 

Good  Will, 

1,500  00 

Donation, 

7,140  00 

Treasury  Stock, 

Accounts  Payable, 

$8,450  00 

M.  Curtis, 

3  91 

C.  W.  Pacy, 

5  84 

8,459  75 

Capital  Stock, 

50,000  00 

$58,459  75 

$58,459  75 

128 


M.  Curtis  and  C.  W.  Pacy  not  being  able  to  subscribe  for  a  fraction  of 
a  share,  it  leaves  them  this  small  balance  (as  shown  in  Acount  Payable  on 
trial  balance)  to  their  credit,  for  which  they  should  receive  a  check  so  as 
to  balance  their  account. 

(104).  POINTERS  ON  THE  TREATMENT  OF  GOOD  WILL. 

Questions  Kindly  advise  me  what  is  the  best  practice  in  the  treatment 
of  the  item  of  good  will.  What  constitutes  good  will,  how  is  its  value  com- 
puted and  how  should  it  show  on  the  books  ? 

Answer  :  This  is  a  rather  difficult  question  to  answer,  for  the  reason 
that  the  respective  views  of  the  business  man  and  acountant  do  not  always 
agree  in  these  days  of  strenuous  incorporations  and  consolidations. 

When  a  professional  promoter  perceives  an  opportunity  to  induce  a 
few  com.mercial  magnates  to  cease  competition  and  co-operate  for  the  sake 
of  mutual  economy,  aggrandizement,  etc.,  he  perfectly  understands  that  if 
he  is  to  get  anything  for  his  ideas  and  services  it  must  be  from  some  other 
source  than  the  original  stockholders  of  the  businesses  to  be  amalgamated. 
Where  then  must  it  come  from?  The  only  answer  is — From  the  innocent 
and  confiding  public.  The  promoter,  therefore,  arranges  to  first  give  the 
original  owners  everything  they  want  (which  means  the  actual  value  of  the 
businesses  involved,  with  something  additional  thrown  in),  and  then  in- 
creases the  issue  of  stock  for  public  subscription,  the  proceeds  of  which  are 
intended  chiefly  to  pay  his  bill,  which  may  be  as  large  as  the  promoter  likes, 
so  long  as  it  does  not  afifect  the  pockets  of  the  original  owners  heretofore 
alluded  to. 

This  stock  issued  for  public  subscription  must  be  represented  on  the 
books  by  some  kind  of  an  asset,  and  so  the  promoter  opens  an  account  on 
the  ledger  called  good  will,  or  franchise,  or  something  similar,  and  debits 
it  with  whatever  amount  may  be  found  advisable. 

We  never  find  a  man  like  Carnegie  subscribing  for  any  stock  repre- 
sented by  hermetically  sealed  vacuum.  When  someone  recently  alluded  to 
the  slump  in  steel  stocks,  Carnegie  is  reported  to  have  said  that  it  did  not 
interest  him  in  the  least,  as  all  the  stock  he  held  was  secured  by  first  mort- 
gages on  the  property. 

There  are  cases,  however,  where  good  will  is  a  fairly  respectable  asset 
and  not  a  phantom  in  masquerade.  Suppose  a  retail  grocer  has  carried  on 
his  business  for  years  on  a  particularly  much  frequented  corner  on  a 
principal  street.  Everybody  knows  him,  he  has  a  solid  reputation  for  the 
class  of  goods  he  sells,  and  because  of  his  advantageous  corner  position  a 
great  deal  of  custom  comes  to  him  which  otherwise  would  go  elsewhere. 
This  retail  grocer  thinks  it  time  to  retire  from  business,  and  a  corporation  is 
organized  to  purchase  his  interests.     Here  is  an  instance  where  the  good 

129 


will  of  a  business  is  a  tangible  and  valuable  asset  and  must  be  paid  for. 
Furthermore,  in  this  case  the  good  will  is  not  likely  to  depreciate  in  value 
so  long  as  the  business  is  intelligently  conducted,  and  the  new  proprietors 
will  violate  no  law  of  accountancy  if  they  retain  the  amount  paid  for  good 
will  on  their  books  as  a  permanent  asset. 

In  the  event  of  a  business  being  acquired  by  a  company,  the  stock- 
holders other  than  the  vendors  of  which  are  investors  and  not  workers,  the 
amount  charged  for  good  will  should  be  proportionately  larger  as  the 
success  of  the  business  continues  to  depend  on  the  individual  efforts  of  the 
vendors.  The  amount  charged  by  vendors  for  good  will  is  usually  based 
on  the  amount  of  net  profits  earned  by  the  business  for  a  certain  number  of 
years — frequently  three  years. 

As  above  indicated  it  is  not  necessary  nor  always  desirable  to  write  off 
a  certain  amount  of  good  will  from  the  profits  each  year,  but  care  should  be 
taken  to  see  that  good  will  is  not  inflated  by  capitalized  commissions, 
brokerage,  or  advance  advertising,  and  omitting  to  write  these  accounts 
off  within  a  reasonable  period.  If  good  will  is  expected  to  depreciate  a 
good  plan  is  to  establish  a  reserve  against  such  depreciation  and  this  reserve 
will  be  ample  protection  so  long  as  the  directors  do  not  covet  the  amount 
and  endeavor  to  loot  it  by  way  of  dividend.  Where  a  corporate  organization 
is  being  effected  with  a  view  to  purchasing  a  growing  business  and  good 
will  is  an  element  of  the  bill  of  sale  the  accounts  of  the  business  should  be 
very  carefully  examined  by  a  professional  accountant  with  the  view  to 
satisfying  the  purchasers  that  they  have  not  been  falsified  in  order  to  show 
excessive  profits,  and  thus  secure  an  excessive  valuation  of  good  will. 
Vendors  of  businesses  have  been  known  to  conceal  liabilities,  pay  expenses 
out  of  their  own  pockets,  include  unsalable  stock  and  uncollectible  debts  in 
their  inventories,  and  otherwise  devote  their  energies  to  obtaining  something 
for  nothing. 

Our  advice,  therefore,  to  incorporators  of  companies  organized  with  a 
view  to  purchase  growing  businesses  is — pay  as  little  as  possible  for  good 
will,  carry  it  on  the  books  as  a  permanent  asset  and  build  up  a  reserve 
sufficient  to  cover  any  depreciation  which  may  ensue. 

(lO^).  A   POINTER   ON    ''WAITING^'    FILES. 

We  illustrate  a  very  complete  and  convenient  record  of  unfilled  orders, 
the  particulars  being  entered  on  the  back  of  the  regular  order  blank. 

In  addition  to  recording  the  successive  deliveries  of  each  item  in  the 
proper  column,  it  is  a  good  plan  to  also  stamp  on  the  face  of  the  order  blank 
the  word  "complete"  against  each  item  as  soon  as  it  is  shipped. 

(l06).  A   POINTER  ON   ANTICIPATED  DISCOUNTS. 

In  some  businesses  it  is  usual  to  allow  as  much  as  15%  for  cash  dis- 

130 


count  provided  the  bill  is  paid  on  a  certain  day  of  the  next  month  to  that  in 
which  the  bill  is  rendered. 

In  making  up  the  balance  sheet,  it  can  easily  be  seen  that  it  is  scarcely 
correct  to  include  these  accounts  receivable  at  their  face  value,  as  most  of 
the  customers  w^ill  undoubtedly  take  advantage  of  the  discount.  The  best 
plan,  therefore,  is  to  debit  Profit  and  Loss,  and  credit  Discount  Adjustment 
account  with  the  amount  of  these  cash  discounts.  This  item  then  stands  in 
the  balance  sheet  as  a  liability. 

When  the  books  are  not  closed  as  is  customary  in  businesses  making 
Balance  Sheets,  Trading,  and  Profit  and  Loss  accounts  each  month,  this 
adjustment  may  be  made  as  a  memorandum  outside  of  the  books. 

When  the  adjustment  is  made  on  the  books,  it  is  necessary  in  reopening 
them  to  debit  Discount  Adjustment  account,  and  to  credit  Profit  and  Loss. 
Then,  as  the  discounts  are  allowed,  the  Profit  and  Loss  credit  is  adjusted. 

(lOy).  A  POINTER  ON  CASH   SALES. 

A  very  efficient  plan  of  checking  cash  sales  is  the  use  of  cash  sales 
tickets  with  stubs  or  carbons.  The  salesman  retains  the  stub  or  carbon 
for  his  own  protection.  The  original  goes  to  the  cashier  with  the  money. 
'At  the  end  of  the  day  each  salesman  should  make  a  summary  from  his 
stubs  or  carbons,  and  report  amount  of  same  to  the  manager.  The  manager 
will  foot  these  amounts  and  compare  them  with  the  amount  entered  in  the 
cash  book.  The  stubs  or  tickets  should  be  consecutively  numbered  when 
printed,  so  that  every  ticket  must  be  accounted  for. 


EXERCISES. 

The  United  States  Book  Company,  a  corporation,  makes  an  arrange- 
ment with  its  creditors,  and  a  receiver  is  appointed  to  close  out  the  business. 

The  trial  balance  of  the  United  States  Book  Company,  July  1st,  1903, 
at  which  date  the  receiver  took  possession,  is  as  follows : 


Capital  Stock, 

$20,000  00 

Cash, 

$     553  69 

Office  Furniture, 

1,666  92 

Meter  Deposit, 

60  00 

Accounts  Receivable, 

26,153  95 

Rogers  &  Co.,  moneys  collected  for  their 

account 

on  books  sold, 

14,738  00 

Notes  Payable, 

27,573  50 

Accounts  Payable, 

4,197  22 

Merchandise    Purchases, 

27,404  74 

Merchandise  Sales, 

8,045  35 

Expenses, 

10,751  97 

Surplus    (deficit), 

7,962  80 

$74,554  07         $74,554  07 
The  value  of  merchandise  on  hand,  July  1st,  1903,  was  $20,183.86. 
The  trustee's  cash  receipts  and  payments  are  scheduled  below. 

131 


RECEIPTS. 

Balance  on  hand, 

Meter  Deposit, 

Office  Furniture  sold  for, 

Accounts  Receivable  Collected, 

Additional  Collections  for  Rogers  &  Co.   (in  full), 

Sales  of  Merchandise, 

Commissions  Received  fromjlogers  &  Co., 


PAYMENTS. 

Notes  Paid, 

Accounts  Paid, 

Merchandise  Bought, 

Expenses, 

Remitted  to  Rogers  &  Co.  in  full. 


$  553  69 

60  00 

487  90 

22,872  75 

1,965  24 

22,090  70 

6,703  24 

$54,733  52 

$27,573  50 

4,197  22 

562  55 

5,697  01 

16,703  24 

$54,733  52 
Accounts  receivable  not  collected  are  worthless.     The  office  furniture 

was  sold  by  auction  and  realized  the  amount  stated. 

From  the  trial  balance  of  the  United  States  Book  Company,  make 

Trading  account  and  Profit  and  Loss  account,  showing  total  deficit  on  that 

date,  also  make  balance  sheet. 

The  receiver's  report  of  receipts  and  payments  was  submitted  July  20. 

Make  Trading  and  Profit  and  Loss  account  of  his  operations  and  make 

necessary  journal  entries  to  close  the  books  of  the  United  States  Book  Co. 

SHIPMENTS. 


Waiting  File-(See  par.  105) 


132 


CHAPTER  XIII 


The  Abolition  of  the  Trial  Balance. 

Some  time  ago  a  little  pamphlet  entitled  "How  to  do  without  a  Trial 
Balance"  was  published  by  The  Bookkeeper  Publishing  Co.,  Ltd.  This 
treatise  had  a  very  large  sale  and  has  been  of  considerable  value  to  book- 
keepers. It  illustrated  several  ways  by  which  the  bookkeeper's  posting 
work  could  be  proved  accurately  each  day,  as  it  was  performed,  so  that  at 
the  end  of  the  month  the  trial  balance  was  merely  an  ornamental  statement 
drawn  off  for  the  satisfaction  of  the  principals  of  the  business,  who  required 
it,  because  they  had  always  hitherto  been  accustomed  to  receive  it. 

To  the  average  bookkeeper,  however,  the  trial  balance  has  always  been 
an  untamed  bug-a-boo,  a  thing  of  horror  and  vexation  for  ever.  Each 
month  would  be  a  repetition  of  the  last.  Nothing  could  exceed  the  anxious 
care  with  which  each  posting  was  made  and  scrutinized  after  being  made. 
Every  addition  and  subtraction  in  drawing  off  balances  was  re-added  and 
re-subtracted  to  insure  absolute  accuracy.  All  the  balances  were  entered 
in  red  ink,  so  that  none  should  escape  observation  in  listing  them.  In  fact 
every  possible  precaution  was  taken  to  verify  the  listing  of  the  balances  on 
the  trial  balance  sheet  and  then  at  last  came  the  fateful  footing — first 
the  debits  and  then  (with  nerves  on  edge  and  bated  breath) — the  credits — 
and  then  deep  gloom,  irradiated  only  by  savage  language  unfit  for  repetition 
in  these  classic  pages — the  lightning  illuminating  the  storm. 

Still,  in  entirely  abolishing  the  trial  balance,  it  will  be  necessary  to  take 
the  same  care  in  making  postings,  in  adding  and  subtracting,  and  in 
drawing  off  balances,  and  we  still  recommend  the  methods  advocated  in 
these  little  text  books — How  to  do  without  a  Trial  Balance  and  The  Detroit 
Bookkeeper's  Balance  System,  these  methods  being  further  developed  and 
illustrated  in  'Thome's  Twentieth  Century  Bookkeeping  and  Business 
Practice." 

(l08)  WORKING    BALANCE    SHEET. 

But  the  trial  balance  itself  is  unnecessary — a  useless  encumbrance,— 
and  in  order  to  convey  our  ideas  in  a  shape  easily  comprehensible,  we  will 
first  refer  to  the  ordinary  working  balance  sheet.  This  statement  usually 
consists  of  four  sections — 

Ku  133 


(a)  Trial  Balance, 

(b)  Trading  Account. 

(c)  Profit  and  Loss  Account. 

(d)  Balance  Sheet. 

The  three  sections  b,  c  and  d  are  simply  a  distribution  of  Section  a^ 

(lOp)  ARBITRARY    BALANCES. 

It  is  a  matter  of  common  knowledge  that  in  many  businesses  the  cash 
and  bank  balances  are  not  carried  in  ledger  accounts,  but  are  taken  direct 
from  the  cash  and  bank  records,  and  arbitrarily  included  in  the  balance 
sheet.  The  same  remark  applies  to  the  inventory,  which  is  also  added 
arbitrarily  to  the  balance  sheet  and  to  the  Trading  account. 

We  are  speaking  particularly  in  reference  to  businesses  where  complete 
statistics  are  required  each  month  and  this  requirement  is  becoming 
universal  in  up-to-date  establishments. 

(no)    AGREEMENT   BETWEEN    BALANCE   SHEET   AND    PROFIT   AND    LOSS   ACCOUNT. 

It  will  be  apparent  to  all  that  with  the  addition  of  the  cash  and  bank 
and  inventory  balances,  the  balance  sheet  and  Profit  and  Loss  account  will 
agree,  i.  e.,  the  current  surplus  of  assets  over  liabilities  on  the  balance  sheet 
will  equal  the  current  surplus  of  revenue  over  expenditures  in  the  Profit 
and  Loss  account. 

(in)  SECTIONALIZATION   AND  GENERAL   LEDGER   ACCOUNTS. 

Having  assimilated  this  proposition  sufficiently,  it  will  be  a  compara- 
tively easy  matter  to  appreciate  that  with  a  proper  sectionalization  of  the 
accounts  carried  in  the  general  ledger,  the  balance  sheet.  Trading  and 
Profit  accounts  can  be  drawn  off  directly  from  the  ledger  without  the 
interposition  of  any  trial  balance,  which  by  this  method  becomes  entirely 
unnecessary  and  is  hereafter  banished  to  the  unproductive  and  un-inter- 
esting  land  of  the  has-beens. 

A  practical  illustration  of  this  method  of  operating  monthly  the  annual 
statements  is  now  presented. 

(lI2)  CARD    GENERAL    LEDGER. 

A  general  or  private  ledger  will  be  carried  which  will  contain  all  assets, 
liabilities,  representative  and  nominal  accounts.  We  would  prefer  a  card 
ledger,  because  of  the  facility  with  which  it  can  be  cross  indexed,  and 
because  when  one  card  is  full  another  may  be  substituted  and  the  position 
of  the  accounts  will  always  be  identically  the  same,  as  planned  in  the 
original  classification.  If  a  new  account  is  opened,  it  can  under  these 
conditions  be  dropped  in  exactly  in  its  right  place,  so  that  there  will  never 
be  any  confusion  and  the  ledger  accounts  will  always  be  found  in  their 
proper  sequence,  as  they  should  appear  on  the  statistical  or  financial 
statements. 

In  any  case,  whether  bound  books,  loose  sheets  or  cards  are  used  the 

134 


manipulation  of  accounts  in  the  ledger  is,  as  a  rule,  only  detected  by 
accident. 

Chemicals  can  be  used  for  altering  amounts  and  the  embezzler  can 
certainly  afford  to  purchase  a  duplicate  ledger,  if  considered  necessary,  the 
pages  of  which  may  be  used  as  substitutes  for  those  removed  from  any  kind 
of  ledger. 

Unless  an  Auditor  is  employed  to  check  the  books  the  employers  are 
at  the  mercy  of  the  dishonest  book-keeper  unless  accidental  discovery  is 
made,  but  on  account  of  the  locking  devices  and  consecutive  numbers  which 
form  a  part  of  every  modern  loose-leaf,  or  card  equipment,  no  one  but  the 
employer  and  the  book-keeper  has  any  chance  to  lose,  or  destroy,  or 
substitute  cards  or  loose-leaves. 

(113)  ^  CONTROLLING  ACCOUNTS  AS  SAFEGUARDS. 

Then  again,  by  the  use  of  controlling  accounts  the  alteration  of 
balances,  or  the  destruction  of  cards  or  loose-leaves  containing  accounts, 
would  promptly  be  detected  because  the  balances  of  the  controlling  accounts 
derived  from  the  books  of  original  entry,  from  which  postings  are  made, 
would  not  agree  with  the  aggregate  balances  of  the  ledgers  to  which  the 
controlling  accounts  relate.  These  differences,  however,  would  only  be 
discovered  by  the  checking  of  the  work,  either  by  an  Auditor,  or  some 
independent  investigator. 

With  a  card  ledger,  therefore,  we  would  provide  guide  cards  for  the 
principal  divisions  and  an  extension  tab  for  each  account,  thus  doing  away 
with  all  indexing. 

(114)  SUB-SECTIONALIZATION   OF   TRADING   ACCOUNTS. 

We  would  start  our  ledger  with  the  trading  section  (guide  card, 
Trading  account).  The  sub-sectionalization  of  the  trading  accounts  would 
depend  entirely  upon  the  nature  of  the  business.  This  does  not  in  any  way 
affect  the  general  plan  submitted  and  is  only  mentioned  to  show  that 
complications  of  this  kind  have  been  borne  in  mind.  First  will  come  the 
trading  debits,  second  the  trading  credits  (sales,  etc.),  third  the  inventory 
accounts  of  raw  material  and  material  out  on  uncompleted  jobs.  The 
balance  of  this  account  (gross  profit)  is  transferred  to  the  Profit  and  Loss 
account. 

Our  next  section  contains  the  revenue  accounts  (guide  card,  Profit  and 
Loss  accounts). 

(775)  SUB-SECTIONALIZATION    OF   REVENUE   ACCOUNTS. 

These  accounts  will  be  sub-sectionalized,  as  per  accounting  require- 
ments suited  to  the  business,  such  as  current  general  expense,  selling 
expense,  suspense  and  other  debits  (wherever  revenue  is  received  and 
charges  made  in  respect  of  investments  outside  of  the  business,  such  as 
real  estate,  bonds,  etc.,  these  items  should  be  carried  to  a  subsidiary 
Profit  and   Loss  account,  after  showing  in  the  regular  Profit  and  Loss 

135 


account  the  amount  actually  gained  by  the  business  itself)  current  credits 
other  than  sales  credits,  the  balance  being  net  profit. 

(77(5)  SUE-SECTIONALIZATION   OF   BALANCE   SHEET. 

Our  next  section  will  consist  of  the  general  asset  and  liability  accounts 
(guide,  card.  Balance  Sheet),  also  properly  sub-sectionalized  and  usually 
after  the  following  plan. 

Assets.  (a)  Active  Assets. 

(b)  Fixed  Assets. 

(c)  Suspense. 
Liabilities,    (a)  Floating  Liabilities. 

(b)  Funded  Liabilities. 

(c)  Capital  Liabilities. 

(d)  Outside  Investments,  to  be  shown  on  subsidiary 

balance  sheet. 

(777)  AGREEMENT   BETWEEN    BALANCE   SHEET   AND   PROFIT   AND   LOSS   ACCOUNT. 

The  ledger  accounts  are  now  exactly  in  the  order  in  which  they  should 
appear  on  the  financial  statements  and  all  the  bookkeeper  has  to  do  is  to 
list  the  balances  of  the  proper  statements  and  look  for  his  agreement 
between  the  surplus  of  assets  over  liabilities  on  the  balance  sheet  and  the 
surplus  of  revenue  over  expenditures  on  the  Profit  and  Loss  account, 
instead  of  looking  for  same  in  the  footings  of  miscellaneous  balances  on  the 
trial  balance. 

(778)  ADJUSTMENTS. 

All  adjustments  should  be  made  by  journal  entry.  Temporary  adjust- 
ments (not  intended  to  go  on  the  books,  but  taken  into  consideration  in 
order  to  obtain  an  accurate  statement  of  actual  conditions)  should  be 
debited  and  credited  to  a  special  Adjustment  account  carried  in  the  Trading 
or  Profit  and  Loss  section.  For  example — prepaid  insurance  proportion 
per  month  $41.50,  deduct  $41.50  in  pencil  from  Insurance  Asset  account, 
debit  Profit  and  Loss  Adjustment  account  same  with  wages  earned,  but  not 
due,  etc. 

FREE  COUPON   OFFER. 

All  purchasers  of  this  text  book  and  Thome's  Twentieth  Century 
Bookkeeping  and  Business  Practice  will  be  entitled,  free  of  charge,  to  a 
chart  of  classification  of  their  accounts,  illustrating  how  they  should  be 
arranged  in  order  to  successfully  eliminate  the  Trial  Balance. 

This  classification  will  be  standard,  and  according  to  the  best  account- 
ing practice. 

Those  desiring  to  avail  themselves  of  this  ofifer  will  please  mail  a  copy 
of  Trial  Balance  last  drawn  off  from  the  books  (excluding  figures)  together 
with  mention  of  this  offer  to  the  Secretary,  International  Accountants' 
Society,  Incorporated,  Detroit,   Mich. 

136 


137 


CHAPTER  XIV 


Presenting  two  complete  illustrations,  showing  how  the  statistical  accounts 

of  the  business  should  be  sectionalized  and  how  to  prove 

the    accuracy   of   the   work   on    the    books 

without  taking  a  trial  balance. 


(//p)  DEMONSTRATION    NO.    I. 

Telford  &  Martin  began  business  January  1,  1903,  and  at  the  end  of  the 

year  the  following  trial  balance  was  submitted : 

TRIAL  BALANCE,  DEC.  31,  1903. 

William  Telford  $15,000 

Samuel   Martin    15,000 

Merchandise  account   $12,000 

Cash    1,300 

General  expenses  400 

Office  salaries   6,500 

Wages — Shipping  clerks,  porters,  cartmen,  etc 1,500 

Accounts   receivable    20,000 

Discounts    1,500 

Horses  and  trucks 1,000 

Horse  feed,  stable  charges,  etc 300 

Traveling   expenses    3,000 

Interest    200 

Bills  payable   (firm's    note    discounted    at    5    per    cent,    due 

Feb.  1,  1904) 10,000 

Rents    1,500 

Furniture  and  fixtures 500 

William  Telford,  drawings 3,000 

Samuel  Martin 3,000 

Accounts  payable    15,000 

Bad  loan 750 

Stationery  and  printing  250 

Profit  on  sale  of  bonds 1,700 

$56,700   $56,700 
An  analysis  of  the  merchandise  account  showed  debits:     Inventory, 
Jan.  1,  1903,  $15,000,  purchases  $76,850,  returns  $1,500,  freight  on  purchases 
$900,    freights   on    sales   $250.      Credits:      Sales,   $79,000,    returns   $2,000, 
allowances  $1,500. 

The  inventory,  Dec.  31,  1903,  showed  cost  $32,000.  The  partners  are 
allowed  6  per  cent  salaries,  which  were  drawn  and  charged  to  office  salaries, 
viz :  Telford  $3,000,  Martin  $2,500.  Allowances  are  to  be  made  as  follows : 
5  per  cent  for  doubtful  debts ;  10  per  cent  for  depreciation  on  horses  and 
trucks  and  furniture  and  fixtures. 

Prepare  balance  sheet  and  necessary  accounts  for  presentation  to  the 
firm. 

138 


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Af50IlTlON  OF  THE  TRIAL  (BALANCE 

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Stciti  0  9  e  ry  £vPr I  Qti  q  ^ 

30  0  0.OO 
300  00 

1050  00 
250.0  0 

15000    47.50.00 

Adrnl^istr^tiof)  £x 

P 

S^lciries 
C<nsf)  DiscoDQts 

or^  Soles 
lqtere5T 
Ger)erol  Expense 
Ref)t 

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Ficid  Loor) 

^t,9^ 

650  0.00 
ifoooo 

2'dJ>35 
40O0O 
1500.00 

1  0000 

750  0  0   II  033.33- 

Dejorec 

otior) 

Accts  T^ece'ivcible 
Horses  6.Tri)cKi 
Fi;rQiti)re  £.  Fixtijres 

1  000  oo 
1  oo  oo 

so  00           tSOOO 

Net  Bi^sitjess Profit 

1^  8  GO  00 

__i<??00.00 

28fo6  fc7 
I  7  00  00 

Ne-f  BiJSiQG'ss  Profit 

Brou^h"''  Dowr) 
profit  09   f^o^d  5oles          ^ 

Total  Profit 

45(1,  G.G7 

BALANCE   SHEET   Deo.3i 

Assets 

L1A131L1TIE6 

Coty) 
lOveotory 
Acct6.  Rec. 
Fi^rr^.  £sFix., 
Horses  S<Triic\{b 

1 

1300,00       Accts.  Pciycible 
32000.00         f5ill5 

20000.00      Interest  Accrd. 

5'oo.oo     DeprecicitipQ^F^eserve 
1  000.00      W.Telford  Ir)vestfv\e9t 
.S  McirtiQ 

15*0  00.00 
10000.00 

1  t  So.oo 
(42gr3'34 
\AZZ3.33 

S^%oo.oo 

^4^00.00 

149 


(l20)  DEMONSTRATION    NO.    2. 

TRIAL  BALANCE  AT   END   OF   PERIOD. 

Inventory $  4,328  91 

Purchases 13,852  33 

Wages  9,499  19 

Factory  expense 242  11 

Sales $15,794  79 

Cash  discounts  received  on  purchases 417  41 

Allowances  to  customers 195  34 

Rent 300  00 

General  expense  312  87 

Insurance  354  54 

Commission  45  00 

Cartage  on  deliveries  166  09 

Salaries 3,031  49 

Cash  49  91 

Bank    2,651  73 

Accounts  receivable,  good 5,336  29 

Accounts  receivable  2,211  97 

Suspense  deposits  on  contracts 500  00 

Loans,  good 4,408  13 

Show  room  stock 1,812  50 

Machinery 4,399  78 

Tools  2,325  66 

Drawings 311  66 

Models  2,107  55 

Office  furniture  and  fixtures 759  29 

$9,903  94 

Factory  improvements 852  59 

Notes  payable $14,550  00 

Capital  stock $25,000  00 

Capital  stock 10,000  00 

15,000  00 

Surplus  14.292  73 

$60,054  93  $60,054  93 

From  the  accompanying  trial  balance  of  the  books  of  B  company,  iron 
manufacturers,  prepare  such  statements  as  are  necessary  to  show  the  value 
of  its  capital  stock. 

The  inventory  at  the  end  of  the  period  is : 

Material 1,266  00 

Orders  in  process 15,369  00 


$16,635  00 


Make  such  provision  for  depreciation  as  you  think  proper.  The  stock 
in  the  show  room  consisting  of  ornamental  iron  and  bronze  work  has  not 
deteriorated.  The  drawings  and  models  represent  two  years'  outlay,  all  of 
which  is  carried  as  assets,  but  they  have  no  realizable  value.  Factory 
alterations  and  improvements  are  to  be  spread  over  a  period  of  ten  years, 
represented  by  the  lease  of  the  factory. 


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nANi;rACTZ;RlNG  ACCOZJNT  Dec^i 


Inventory  /i 

Less  Ccb\j  Disc^         

factory  E.Xpe^se 
Depr€ci<>t;of) 

Cr. 
lnvef)Tory'yji 
fS^lance  to  Trad ir)^ '"/J 


Dr 
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Rent 

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Gross  Profit 


\Z,SSZ.35 
417.41 


4J2?^« 
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2  1  g?<T<? 


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TRADING  ACC0Z;NT,  Dec  3» 


Cr 


|30J"^.I2 
3  0  0.00 
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3^0  00 
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7^0.00 

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1684^45 


5cilc6 


l6?4q.45 


PI^OFIT  AND  L055  ACCOi^NT,    Dec^l- 


Dr 
5cilcirie5 
Cartage 
Com«*\iS5ioQ6 

(jer)'\.  Expense 
Peserved-A/F^ 

^    F6^F 
Models  (writteij  off) 
DrciwiQ^S 


t?3i.4q 

i66.oq 

4500 

35454 

3  I  2. 3^7 

23  1  Sr.feq 
75^3 

105377 
I  55^3 

G3l  4Z» 


BALANCE  SHEET,   Dec.  31 


Cr 

Gross  Profit  bro't  doWi) 
(3ol(n9C€,lo33  to  Si^rjaJosJo/ 


I  684^.4 "J 


104033 
.C2  7  3.8'« 


Assetb 

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L0Q()b 

Depositb  or)  CotjTrcicti 

iQverjtory 

5^70v^/-Roon^    5tocK. 

Mcicbif)ery 

Tools 

Fargiture  E^FixTiJres 

Factory  lr»^prover\e9t« 


27  0  I  64 
7542^2fe 
440^  13 
500.00 
I  fofc33'oo 
I  S  I  2.i-o 
43q£?.7g 

szjafs 

47131.47 


LicibiliTics 

Notc5  payable 
f^eserveb 

Ca\otfa\  6tocK.        25boo.oo 
Lebf>'Dt)ib^ue6  loooooo 


G  5  I  4  2 1 


14550  00 

3  2Sg  74 

I42<?2.73 

\SOOO 00 


47 1  3  147 


162 


^       OF  THf 
IIMIX/CDCITV 


INDEX 


By  Chapters  and  Paragraphs 

A 

Chapter.        Paragraph. 

Accounts — Adjustment  2  17 

Controlling 2  17 

Merchandise    10  80 

Nominal  1  8 

Personal 1  5 

Profit  and  Loss 5  45 

7  55, 64 

10  SI 

11  99 
Real    1  G 

3  23 

Representative    1  7 

Revenue    13  109 

Sales  Ledger  2  17 

Trading    3  31 

5  45 

7  54 

10  81 

11  98 

Acfcounts  Used   1  4 

Accounting  with  Branch  Houses 8  04 

Active  Assets 3  24 

Adjustment  Accounts  2  17 

13  113 

Adjustment  Entries — Illustration  of 11  95 

Adjustments     13  118 1 

Advantages  of  Incorporation 8  73 

Advantages  of  the  Voucher  System 4  42 

Anticipated  Discounts 12  106 

Arbitrary  Balances   13  109 

Audited  Bills   4  37 

B 

Balance  Ledger — Explanation  and  Illustration  of 11  94 

Balance  Sheet  and  Profit  and  Loss  Account — Agreement  Betv -^en 13  110,117 

Balance   Sheet — Sub-Sectionalization  of 13  116 

Working    13  108 

Balance  Sheets  5  45 

7     53,  56,  59,  61,  63 

10  81 

11  100 

Bills  Receivable   4  44 

Book  Inventory 10  83 

Books  of  Mr.  Montgomery  Curtis 12  101 

Solution  No.  1 12  102 

Solution  No.  2 12  103 

163 


Books  Used   2  9 

Books  Used  Exclusively  for  Debit  Entries 2  8 

C 

Capital  Liabilities  3  29 

Card  Catalogue  Record 4  33 

Card  Ledger   13  112 

Card  Ledger — Form  of 11  89 

Card  Supplies  Record 4  34 

Cash  Sales  12  107 

Cash  Book — Form  and   Entries  of 11  91 

Catalogue  Record — Card  4  33 

Charges  to  Customers — Method  of  Making 11  87 

Classification  of  Debits  and  Credits 1  10 

Classification  of  Trial  Balances 5  45 

Closing  Entries  10  79 

11  96 

Colored  Sales  Tickets 2  21 

Comparative  Statement  by  Months 6  48 

Comparative  Statement  by  Months — Chair  Manufacturing  Business...     6  48 

Comparative  Statement  of  Increases  and  Decreases 6  49 

Computation  of  Percentages 6  47 

Controlling  Account   2  17 

Controlling  Accounts  as  Safeguards 13  113 

Cost  Comparative  Statements 6  48 

Credits    1  10 

Credit  Journal  4  40 

Customers'  Ledgers — Description  of 11  88 

D 

Debits   1  10 

Debits  and  Credits — Classification  of 1  10 

Demonstration  No.  1 - 14  119 

Demonstration  No.  2 14  120 

Departmental  Sectionalization 2  20 

Distribution  of  Trial  Balances 5  45 

Double  Entry  Book-keeping 1  3 

E 

Eagle  Printing  Co 8  69 

9  74 

Entries  on  the  Books  of  Smith  &  Jones 11  85 

F 

Factory  Order  Blank 2  13 

Fixed  Assets   3  25 

Floating  Liabilities   3  28 

Funded  Liabilities  3  27 

G 

General  Ledger  Accounts — Arrangement  of 11  93 

Illustration  of   11  97 

Sectionalization  of  13  111 

Good-will 12  104 

I 

Incorporation — Advantages  of 8  73 

Interest    8  65 

Interest  Rule — Six  Per  Cent 8  66 

Twelve  Per  Cent ,     8  67 

Inventory— Perpetual    10  83 

164 


Book    10  83 

Invoice — Form  of 11  86 

J 

Journal  and  Entries — Form  of 11  92 

k 

Keying  Distribution  Columns 4  43 

L 

Ledger  Accounts— Classification  of 13  114, 115,  IIG 

Liabilities — Floating    3  28 

Funded    3  27 

Liability  Reserves   3  30 

Limited  Partnerships   8  72 

M 

Manifold  Drafts  9  78 

Manifold  Order  Blanks 9  77 

Merchandise  Account 10  80 

Model  Sets  for  Demonstrations 14 

N 

Nominal  Accounts   1  8 

3  32 

Nominal  Ledger  5  45 

O 

Omission  of  Trial  Balance 13  111 

Opening  Entries  7  51, 60 

Opening  and  Closing  Entries — Illustration  of 9  75 

Order  Blanks   2  11 

Outside  Investments  13  115 

P 

Partnership  Agreement  11  84 

Partnerships    8  71 

Passive  Assets 3  26 

Perpetual  Inventory  10  -  83 

Personal  Account 1  5 

Premium  on  Stock  Subscribed 9  76 

Preparation  of  Comparative  Statements 6  46 

Primary  Principle   1  ? 

Private   Ledger    13  112 

5  45 

Profit  and  Loss  Accounts 5  45 

7  55,64 

10  81 

11  99 

Profit  and  Loss — Subsidiary  Account 13  115 

Purchase  and  Maturity  Records 4  39 

Purchase  Order   4  36 

Purchase  Record  System 4  35 

R 

Real  Accounts  1  6 

3  23 

165 


Representative  Account  1 

Revenue  Accounts — Sub-Sectionalization  of 13 

S 

Sale  of  Stock  at  Discount 7 

Sale  of  Stock  at  Premium 7 

Sale  of  Stock  by  Installments 7 

Sales  Book — Regular  Form  of 2 

Duplicate 2 

Lumber  Business   2 

Brewery  Business  2 

Department  Business  2 

Sales  Journals  2 

Sales  Ledger  Account 2 

Sales  Recapitulations   2 

Sales  Recapitulations — Form  of 11 

Sectionalization  of  General  Ledger  Accounts 13 

Simple  Interest  Formula 8 

Single  Proprietorships   8 

Six  Per  Cent  Interest  Rule 8 

Slip  System  of  Checking 10 

Solution  No.  1 12 

Solution  No.  2 12 

Special  Balance  Ledger 2 

Statement  of  Increase  or  Decrease  of  Assets  and  Liabilities 6 

Stock  Record 4 

Sub-Sectionalization  of  Balance  Sheet 13 

Sub-Sectionalization  of   Revenue  Accounts 13 

Sub-Sectionalization  ot  Trading  Accounts 13 

Subsidiary  Profit  and  Loss  Account 13 

Supplies  Record — Card 4 

T 

Trading  Accounts  3 

7 

5 

10 

11 

Trading  Accounts — Sub-Sectionahzation  of 13 

Transfer  from  One  Business  to  Another 7 

Transfer  from  Single  Proprietorship  to  Partnership 12 

Transfer  from  Single  to  Double  Entry 7 

Traveling  Salesmen's  Comparative  Records 6 

Territorial  Sectionalization    2 

Trial  Balances   10 

Classification  of 5 

Distribution  of  5 

Omission  of  13 

Turnover   6 

Twelve  Per  Cent  Interest  Rule 8 

V 

Voucher  System  4 

Voucher  System — Advantages  of  the 4 

W 

Waiting  Files  12 

Working  Balance  Sheet 5 

13 


166 


INDEX  TO  STANDARD  ANSWERS 

Accounts—  A  Chapters. 

Accounts   Payable   Controlling 3 

Cash    11 

Controlling    _ 2,  3,  8,  9 

Mine    11 

Nominal   1,  3 

Personal 1 

Profit  and    Loss 7,  8,  9,  10,  11,  12 

Real 1 

Realization    , 12 

Receivers'    12 

Representative    1,  8 

Trading 3,  7,  8,  9,  10,  11,  12 

Accounts    Payable   Controlling   Account 4 

Accounts  Payable  Record 4 

Accounts  Payable  Recapitulation 10 

Accounts   Receivable    Recapitulation 10 

Active   Assets 3 

Adjustment  of  Differences 1 

B 

Balance  Sheet   5,  7,  8,  9,  10,  11,  12 

Balance  Sheet — Working 5 

C 

Capital  Liabilities   3 

Cash  Account 11 

Cash  Book  8,  10 

Classification  of  Debits  and  Credits 1 

Closing  Entries  11 

Colliery  Accounts   11 

Comparative  Monthly  Statem.ent 9 

Comparative  Statements 6 

Comparative  Statement  of  Assets  and  Liabilities 6 

Comparative  Statement  of  Revenues  and  Expenditures 6 

Controlling  Accounts 2,  4,  8,  9 

Corporation  Accounts   11 

Correction  of  Errors 1 

Cross  Entries — Illustration  of 1 

D 

Departmental  Profit  and  Loss  Account 7 

Departmental  Sales  Book. 2 

Depreciation    9 

Differences — Adjustment  of  1 

E 

Eagle  Printing  Co.  Solution 8 

Eagle  Printing  Co.  Second  Solution 9 

Errors — Correction  of  1 

F 

Fixed  Assets  i 3 

Floating  Liabilities    ; 3 

Funded  Liabilities   3 

G 

Gathering  of  Statistics 1 

I 

Invoice   11 

J 

Journal  8 

L 

Liabilities — Capital   3 

167 


Floating   3 

Funded    3 

M 

Maturity  Record   4 

Merchandise — Transfer  of   1 

Mine  Accounts   11 

Money — Transfer  of   1 

N 

Nominal  Accounts  1,  3 

O 

Opening  Entries  11 

P 

Partnership  Accounts  11 

Passive   Assets    3 

Percentages — Computation  of   9 

Percentages  on  Turnover 9 

Personal  Accounts   1 

Profit  and  Loss  Account 7,  8,  9,  10,  11,  12 

Profit  and  Loss  Account — Departmental 7 

Purchase  Book  11 

Purchase  Ledger   10 

Purchase  of  Business  and  Transfer  of  Accounts 7 

Purchase  Record 4,  8 

R 

Real  Accounts  1 

Realization  Accounts  12 

Receivers'  Accounts  12 

Records — Accounts  Payable  4 

Maturity    4 

Purchase  4,  8 

Sales   10 

Voucher   4 

Rendering  of  Services 1 

Representative  Accounts    1,  8 

Reserves    6 

Reserves  for  Depreciation , 9 

S 

Sales  Book — Form  of 2 

Sales  Book — Departmental  2 

Sales  Ledger  10 

Sales    Record    : .* 10 

Services — Rendering  of    1 

Solution — Eagle  Printing  Co 8 

Solution  No.  2 — Eagle  Printing  Co 9 

Statistics — Gathering  of    ;  1 

T 

Trading  Accounts 3,  7,  8,  9,  10,  11 ,  12 

Transfer  of  Accounts  and  Purchase  of  Business 7 

Transfer  of  Merchandise 1 

Transfer  of  Money 1 

Trial    Balance    8,  9,  10,  11 

Turnover    9 

U 

Use  of  Values 1 

V 

Values — Use  of    - 1 

Voucher  Record 4 

W 

Working  Balance   Sheet 5 

Winding  Up  of  Business 12 

168 


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